Energy Economy

Predictions Of $100 Oil

West Texas Intermediate crude oil prices jumped above $100 in 2008 and again in 2014. In May 2008, they briefly rose above $150. Circumstances are such that more and more analysts expect a spike in oil prices in the next several months. WTI crude currently trades at just above $75. In June of last year, that figure was only about $40.

CNBC recently reported: “Analysts at Bank of America are even more bullish. They argue Brent prices could see $100 in the summer of next year.”

Both OPEC and the IEA expect a rise in demand this year which probably means higher prices by the end of 2021.

Part of the reason for the price increase is that demand has picked up as the shuttering of the global economy due to COVID-19 has ended in many large countries. OPEC has resisted an increase in production, led most recently by the United Arab Emirates. Oil fracking in America was hurt by the drop in oil prices late last year. Some frackers went out of business, which has constrained supply even further.

OilPrice.com gave another reason for the most recent rapid rise in price:

Crude oil prices jumped higher today after the Energy Information Administration reported an inventory decline of 6.7 million barrels for the week to June 25.

This compares with a draw of 7.6 million barrels the EIA estimated for the previous week.

The trend could be a headwind for the rapidly recovering U.S. economy. Americans became used to gas prices, base on the national average for a gallon of regular, of $2.50 last year. That number is well above $3 today, and $4 in California already. The entire country could face $4 gas by the end of the summer.

Car gas prices are only a small portion of the effect of high oil prices. Airlines can have severe losses from the effects on jet fuel prices. These same airlines nearly went under when COVID-19 shut down air travel. Oil is also used in a large number of petrochemical-based products.

No one can forecast with any accuracy how high oil prices will rise. Certainly, in 2008 and 2014 almost no one expected the spikes, so much of the country was pummeled by an unpleasant surprise.

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