OPEC president Chakib Khelil again blamed speculators for the steep rise in oil prices on Saturday, insisting that supply was not a problem. "There is no problem of supply, the problem is much more linked to speculation," he told a press conference with visiting French ecology and energy minister Jean-Louis Borloo.
Is oil price really a bubble that is created by speculators? Why do some experts say that the world is not lacking of oil and yet oil price has been rising at a fast pace.
Let us analyse oil using Economics 101:
The world can now produce 85 million barrels a day, and that's it. Global demand is 87 million barrels a day and growing.
Now let us put this into the perceptive of an employee:
Say David is earning $4000 a month, but he is spending $5000 every month. Does this mean that he is poor now? No.
Does this mean that he is going to get bankrupt in the next few years? Not sure, depending on how much reserves he has in his bank account, and whether his pay will rise in future.
But one thing is for sure, if he continues to spend more than he earns, his reserves is going to drain off one day.
The world is certainly not lacking of oil now. But the amount that the world is consuming now is more than the amount that it is producing. Let us not forget that the global demand is now 87 million barrels a day, this number can rise to 100 million barrels a day when China and India population become more affluence in the next few years.
So this means deficit (demand > supply) is going to widen. If this trend continues, oil price is going to rise higher as a reflection of its fundamental, and world oil reserves is going to drain off one day.
It is not the evil oil companies or the futures market speculators that have pushed crude oil to $125 a barrels. It's forward looking on the basic supply and demand.
Let's us get ready for $150 oil, $250 oil...
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