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Oil Stays Strong While Everything Else Falls - 4/2/08

While most commodities have seen a fall in prices in the last two weeks, oil remained stubbornly above $100 a barrel. Peak Oil is for real. Supply cannot keep up with demand. Even if the demand for the slick stuff backs off in the U.S., the rest of the developing world is taking up the slack. Export rates are falling more than depletion rates. Exporting nationals are buying more cars and air conditioners as more of their people move into middle class, and they are using more energy to get the oil out of the ground.

Another factor making the supply of oil so delicate is the equipment used world wide to recover and transport oil is old, rusty and barely able to do the job. Unless an investment in new equipment is made this equipment could start failing. Nobody is upgrading this equipment.

Americans blame the U.S. oil companies for the price of oil, but they don’t realize these oil companies are only producing 5% of the world’s consumption. Oil is an international commodity which is seeing greater demand in China, India and other developing countries. The fall of the value of the dollar adds to the problem.

The other national companies including Aramco, Petrobras, Pemex and others, produce the rest of the oil the world demands. These companies may move away from selling their oil on the futures market to making long term favored customer contracts instead. This could mean the U.S. may find itself trying to get oil at any price. We could see shortages and supply disruptions sooner than later.

America’s economic stability comes from a continuous supply of cheep oil. Growth of the economy will depend on what oil does.

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