Libya’s National Oil Corporation chairman Shokri Ghanem put fear into the hearts of commodities traders with his recent statement that $100 a barrel is a “comfortable” price.
Oil, which has been trading towards the bottom of a year-long narrow range of $72-$90 a barrel, rose to above $84 Tuesday and Wednesday.
The current price gives oil producers in the 12-member OPEC organization handsome profits without rocking the world economy into another global recession. The United States is struggling for economic growth following the financial tsunami of two years ago, accompanied by a short period of oil at $35 a barrel.
Oil at $100 a barrel would fuel inflation, already aggravated by sharply higher prices in wheat, cotton, corn and other commodities. However, the weak American dollar, which many speculators bet has a long way to sink, has dropped the “real price” of oil in local currencies by more than 10 percent the last six months.
"We would love to see $100 a barrel," said Ghanem. "We're losing real income. Libya in particular would like to see a higher oil price."
However, Kuwait’s oil minister said he wants a price ceiling of $85, and Iran, which will take over the rotating presidency of OPEC in January, has said that it does not think that the price of oil will spiral upwards.
Michael Guido, director of hedge fund sales at Macquarie Bank in New York, told Reuters, "There is a new bullish spin today among the funds in regards to where the barrel really belongs when looking at the dollar and other commodity markets. Perhaps the market should be resting up at $80 to $90 as opposed to $70 to $80. Eighty dollars is the new $70 when looking at summer support levels."
Predicting the price of commodities is a risky occupation. A Goldman Sachs analyst two years ago said that the price of oil would soar to $200 a barrel. Energy investor T. Boone Pickens predicted the price would reach $150 a barrel by the end of 2009. The cost of oil did indeed reach $145 a barrel, only to plummet to below $35 by the end of the year.
The bottom line for determining prices is supply and demand. The Street.com website reports that demand for oil is slowing down, with China and India the strong exceptions. Oil inventories also are above average, and OPEC has spare producing capacity.
On the other hand, the website notes that China’s increasing demand for oil is becoming more influential than reduced demand from Western countries, while supply capacity hinges on a stable Middle East, especially Iraq where the government is crippled by an ongoing political crisis.
Attacks on producer facilities, such as in Nigeria, also could cripple supplies.
The best antidote to rising oil prices is the use of clean energy, which may suffer a setback following the Republican revolt in Tuesday’s U.S. Congressional elections.