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Crude oil price likely to hit peak

Crude oil prices appear increasingly likely to hit a record in real terms reached during the second oil crisis in 1979, as nominal prices on Monday continued rising well above $90 a barrel.

West Texas Intermediate crude hit a fresh nominal all-time high of $93.20 a barrel on Monday on a combination of renewed geopolitical tension over Iran's nuclear programme, weakness of the US dollar and low inventories.

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In real terms, adjusted for inflation, oil is at its highest price since the early 1980s but still below its modern historical peak - equivalent to about $100-$110 a barrel in today's money - reached in late 1979 after the Iranian revolution.

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There are also discrepancies among energy economists on which level represents the true adjusted record, as WTI futures did not exist in the early stages of the second oil crisis in 1979. That obliges to use for the calculation other crude oils streams that are not exactly comparable.

There is also disagreement about which inflation measure should be used to adjust the price - world inflation or US inflation. But most agree that $100-$110 a barrel will represent roughly the real terms record.

A measure taking account of the evolution over time of the rich countries' per capita income has crude oil prices well below the adjusted record. G7 per capita income is now sufficient to buy 456 barrels of crude oil, well above the 320 to 350 barrels between 1980 and 1982.

To bring G7 purchasing power down to this level would require oil prices rising to between $120-$130 a barrel, according to Deutsche Bank.




In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Oct 29th, 2007 at 06:09:34 AM EST

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