Wednesday, July 18, 2007

Oil prices at $80 a barrel

The US EIA says in "This Week in Petroleum" that "With the futures price increasing, some people are wondering if crude oil prices will reach $80 per barrel at some point this year. The trick answer to this question, though, is that light, sweet crude oil prices have already reached $80 per barrel, just not for West Texas Intermediate"...and that "Any premium on light, sweet crude oils has implications for retail prices for refined products, such as gasoline and distillate fuel."

"With fuel specifications evolving towards cleaner and cleaner refined products, refiners are looking to purchase more sweet (low sulfur) crude oils, thus putting an increasing premium on these types of crude oils. If not for the primary focus on WTI, this premium would be much more visible, but it exists nonetheless. As a result, a significant portion of the rise in retail gasoline and diesel prices is related to higher crude oil prices, particularly light, sweet crude oils...Regardless of where crude oil prices head over the remainder of the year, $80 per barrel prices have already occurred, both overseas and domestically."
Oil-exporting countries are raking in the cash now, but there are so many alternative sources of oil along with alternative fuel systems that are economically viable at oil price levels well below $80 that I think that it is likely that a sharp dropoff in demand for light sweet crude in the next 5 to 10 years. It is important to keep in mind that cycles in energy occur over long time frames.

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