Oil Prices to Reach 200 Dollars per Barrel

February 20, 2015

oilOPEC’s Secretary General, Abdulla al-Badri made a predication that oil prices will start increasing towards $200 per barrel. However, he did not make an estimation of the timeline for the increase in oil prices. Currently, the prices stand at $45 to %55 per barrel and this represents the bottom rock. As a result of the oil prices drop, oil companies have decided to cut back on, not only budgets, but also future growth. Abdulla warned that drastic increases in price will be triggered by continued reductions. Abdulla further added that if drivers do not invest in gas and oil, they can expect to buy at $200 or more per barrel.

Matt DiLallo of Motley Fool gave an explanation of the logic behind the mentioned remark by the secretary general. He said that naturally, oil production declines and there is a need for companies to invest in novel production to replace this production decline and add novel production to sustain the growing demand. Oil companies have however shown reluctance in investing in novel production as they experience a decline in cash flows. This could become problematic over time as there is a natural decline of oil fields globally by approximately 5% annually.

News of increases in oil prices may imply good business news for alternative fuel cars. This segment reported slow sales around the world, with several experts citing a decline in the prices of petroleum as the primary cause. As gasoline prices go up, the sales of battery electric and plug-in hybrid vehicles have a high likelihood of increasing also. However, not all consumers are convinced that the prices of oil will steeply rise. Adam Smith Institute fellow, as well as a Forbes contributor, Tim Worstall said that although oil prices may have hit rock bottom, it is highly unlikely that the prices will reach $200 per barrel. Warstall said that key changes in oil industry economics have been caused by new methods. He added that it seems people don’t really understand the economic change that the oil market has undergone because of revolution. In the current world, developing a new oil field is not only easy but also affordable. Warstall argues therefore that with such a situation, it is highly unlikely to encounter demand and supply mismatches that could result to oil prices reaching $200 per barrel. He is thus convinced that there is no way the oil prices are going to steeply increase and reach a maximum high.


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