Oil again

Oil has been trading at record highs. By most accounts, it surpassed the inflation adjusted hights of ’79 and ’80. Yep, oil has never been more expensive during any of our lifetimes.

Depending on who you believe, we’re headed for a collapse in prices (if $80 can be considered a collapse) or more record highs (anywhere from $120 to $180 in the next two years).

One thing is for sure, the price of crude oil has nearly doubled in the last 2-3 years. It is trading 900% higher than 10 years ago–and 10 years is not very long. This is in adjusted dollars. There’s no way to spin this.

Personally, I think we’re going to easily hit $120 in the U.S. by year end. Even with a possible recession, we have:

* A large number of cars being purchased in China and India
* Rapidly declining output from Mexico, one of our top importers
* Questionable output from some of our other importers
* A dollar that seems to be down for the count for the foreseeable future

Long term is even more problematic. Even in the dream scenarios, technology and new oil discoveries will not be able to keep up with the factors that can and will push prices upward.

In short, regardless of short term prices, I believe we’re going to see a slowly increasing shortage driven by increasing global demand and flat or slightly declining output. I think this is going to vastly change the way we live over the next 10-15 years, if not sooner.