Five year anniversary of $100 a barrel oil
Five years ago this week on Wednesday, January 2, 2008 oil traded at $100 for the first time. The price had climbed from a low of $50 a barrel in 2007. This helped to begin taking the wind out of an over stretched economy that was about to embark on one of the biggest financial crisis in 80 years.
USA Today had this comment the morning after the $100 trade. “Oil prices have been in the high $90s for weeks, but the jump to the $100 mark Wednesday came as a reminder that fuel prices might have no ceiling.”
The price of oil had climbed from a low of $10 a barrel just ten years before. That is an annual compound growth rate of 25% per year and as everyone knows now it wasn’t going to stop at just $100 in 2008.
Equally amazing was it decline to nearly $30 a barrel by the end of 2008 in depth of the financial crisis. What a year it was.
The Guardian of the UK reminded its readers that adjusted for inflation oil was approaching its 1980 record. “The sharp increase in the price of crude on futures markets pushed it above the previous record of $99.21 a barrel reached in November and to within sight of its inflation-adjusted peak of $101.70 hit at the beginning of the Iran-Iraq war in 1980.”
Those of us who followed this more closely at the time remember that many experts dismissed the $100 trade as a fluke. The Washington Post pointed this out in a February 20, 2008 article that followed the first day oil closed trading above $100. “Yesterday was the third time the price of crude oil had poked through the $100 barrier, but it was the biggest move over that line. On Jan. 2, there was one trade for 1,000 barrels of crude oil, the standard-size lot traded on the Nymex. The trade was dismissed by many as a novelty or prank. On Jan. 3, however, 4,000 lots were traded above $100 a barrel, though the price eventually ended up below that mark.”
But the experts still had it wrong even as prices continued to climb. David Kirsch [Director of market intelligence for PFC Energy] and other analysts say, the bull market is ignoring important economic data that suggest oil’s price should fall, not rise. Four month later oil hit $147 a barrel. So much for “market intelligence”. Of course soon the world was to appear to be ending and oil would fall to levels equally as implausible as the $147 price was.
Now after that trip down memory lane you might like to try your hand at forecasting the price of oil for 2013 if you have not already done so. Just scroll down to last week’s posting below and complete the survey. The survey will remain open until next Wednesday, January 9th. The results will be in next week’s report.