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November 15, 2007

What goes up, usually comes down

oil_well%20111507.jpgThe BBC's Evan Davis provides a short article on how to keep the recent spike in oil prices in perspective:

It's clear that $100 a barrel is very high. Although it's worth saying, it's still not a record.

1864 was in fact the most expensive year for oil. It was over $104 in today's money. Notwithstanding that record (and most of us in the media will ignore it when talking of record highs in the next few weeks - we'll be using the high of $104.7 reached in 1980 after the Iranian revolution) we can at least say an impending $100 barrel is getting historically significant.

And Davis provides the following observation about the market for oil that echos that of former Exxon chairman, Lee Raymond:

But the point of volatile market is that it swings both ways.

The longer we have higher oil prices, the more we can economise on oil - by switching to smaller cars for example. And the more oil that gets produced a small excess of supply over demand - and the price can plummet.

The lesson of history, is that when oil prices soar up to record levels, they usually then fall back down.

And here's one final price of oil thought for the day, courtesy of Shai Agassi:

The cost of the average used car in Europe is now cheaper than the cost of gasoline to drive it for a year . . .

Posted by Tom at November 15, 2007 12:24 AM |

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