The Stock Nerd

As everyone has noticed, the world’s eyes are currently focused on oil (unfortunately). Everyone, including expert analysts, are unsure of what’s going to happen next. Is the price of oil going to fall or rise?
As of 1:12 AM CST, one barrel of crude oil is currently worth $133.26! This is up from around $60.00 a barrel in May 2007.
Here’s a chart to help you visualize how drastic the price of a barrel of crude oil has increased since May 2007:

As you can see, the price per barrel has almost DOUBLED!
Why? Well, everyone has their own thoughts when it comes to oil prices. I’ve got a few of my own thoughts to share.

What do I think?

1. The falling dollar in comparison to other major currencies in the past year alone I believe has been a major factor in increasing oil cost. If the Feds continue to cut interest rates, the dollar will only continue to tumble. I think it’s time to stop cutting interest rates, but that’s for another post. Also, A weaker dollar makes oil more affordable for other countries since the US dollar is currency used to trade oil.
2. Developing nations, such as China and India, are demanding more and more oil on a daily basis. According to basic economic rules, if demand increases further and further and supply doesn’t change by much, prices will go up!
3. The demand for oil is inelastic! No matter the price of oil, people will continue to buy oil. Demand has decreased only very slightly with the increasing cost.
4. Conflicts! If you keep up with the news, the recent fluctuations in prices has been due to unfortunate incidents, such as attacks on Nigerian oil facilities. We keep getting hit with bad news on a daily basis it seems now a days. Really, anything in the news about oil that is negative will cause oil prices to rise (and excessively).
5. Long-term supply concerns. As we all know, oil isn’t going to be around forever. Reports released in recent history have mainly indicated decreasing production, which has also been a factor in increasing costs. Some believe we have reached peak oil production, but I don’t agree with that. I think we’re still a good decade away from peak oil production.
6. Speculation, speculation, speculation! There is too much pessimism in the oil market. I believe that the run from $110 to ~$135 a barrel has been due to pure speculation rather than supply and demand. Even though I believe the price of a barrel should be near $110, I wouldn’t be surprised if barrel prices continued to rally on speculation.
7. OPEC. Although this isn’t a major factor, if OPEC would just increase production, I believe we would see a drop in barrel prices temporarily.

It’s just a huge mess and there isn’t much we can do about it just yet. I think oil will continue to rally, but there should be a time in the near future that we should see some sort of correction in oil prices.

Hopefully the writers of “I Am Legend” are a bit too pessimistic and we won’t ever have to see the day when gas prices are $6.63 for octane 87 gas.

Until next time!
- The Stock Nerd

P.S. Feel free to share your thoughts in the comments section.

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