Eighty-Dollar-a-Barrel Oil This Year?

Early last year, I wrote about how those predicting oil prices would fall in 2006 were wrong because they did not fully understand the supply/demand relationship for black gold. In mid-2006, a few analysts started to predict oil moving to $30 to $40 in 2007, the assumption being that it was market traders that were pushing up the price of oil.

As a reader of PROFIT CONFIDENTIAL, you are obviously aware of my opinion over the past two years — I expected oil prices to continue moving higher, and I still have that opinion. The question now is, just how high will oil prices go?

The deputy director for international affairs at the National Iranian Oil Company said Sunday he expects oil to move to $80 per barrel this year. I had written an article last year where I stated I would not be surprised to see oil eventually move to $100 per barrel.

While the Iranian official might have his own motives for making his spike-in-oil-price prediction, I continue to see three major forces continuing to push oil prices higher:

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1) Demand for oil continues to outstrip supply. Oil is not a forever flowing resource, it’s a limited resource. And as long as cars continue to need gas (made from oil), a supply/demand imbalance will continue. There simply have been no alternatives to gas powered vehicles that consumers have taken to. At least, not yet.

2) It’s a global economic world now, and China is the fastest growing player. In China, they have one car for every 700 people. With their economy growing so quickly, that ratio will change drastically over the next decade. In the U.S., we have one car for every man, woman, and child.

3) Most oil producing countries accept U.S. dollars for their oil. If the U.S. dollar falls much further on world currency markets, we could see more countries demanding Euros for their oil — thus pushing up the price of oil because the U.S. would need to buy euros first before buying oil. This last scenario, while likely something the U.S. would fight tooth and nail, would be a total catastrophe.

There you have it, my three reasons why oil prices will continue to move higher. Sixty dollars today, $80 soon, maybe even $100 a barrel… and you read it here first!