Blog: Dave LeggettOil price

Dave Leggett | 17 October 2007

I see the price of crude is reaching record levels again. US light, sweet crude (have to love that benign sounding term - sounds almost like it might be a fizzy beverage that is low on calories) is around the $87-$88 mark due to tensions in Turkey/Kurdistan. But the fact that a fairly minor geopolitical event can tip the market into a renewed price hike and apparent extra tightness says it all about the underlying situation. It's a tight market for a host of reasons, some supply-side, some demand-side.

How high did the price of oil go, inflation-adjusted, in the 'second oil shock' of 1980? About $90. We're getting close to that. Who knows where the market will be heading next? I guess plenty of short-term speculative investors have been piling into oil figuring it's a one-way ticket. It might not take much to send the price down again ('Turkey's president says there will be no invasion of Kurdistan this year!').

With things so volatile though, the price could spike further. This extract is from an article in The Economist:

"...The key factor, however, is the tightness of supply. Francisco Blanch of Merrill Lynch reckons that supply contracted by 500,000 barrels a day in the third quarter while leading economies entered the current quarter with their lowest stock levels for four years. Mr Blanch reckons it would not take much to push the price to $100 a barrel. If it did, stockmarkets might face an interesting test of confidence."

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