Monday, February 16, 2009

Oil is cheap - as long as the supply doesn't run out

As the world’s major economies are in a recession, the demand for oil has decreased, and as a result price of oil gone down significantly to record lows in recent history. When the major economies like Japan, China and USA are in an economic recession, manufacturing is expected to be down, and demand may not recover within the year. Then, we may see oil price lows of even $30 per barrel this year. According to Bloomberg, crude oil for March delivery is at $37.50 per barrel on the New York Mercantile Exchange in Singapore.

The price of oil escalated to $147 per barrel in July 2008 before it bottomed at about $37 early this year. As at today, the price of oil remains at $44.8 per barrel. Producers are said to be operating at near maximum capacity at about 89.5 million barrels per day. When the economic recessions are over, and then when the economies start their engines, the demand for oil may outrun the supply. And the price of oil is expected to hike up to even $200 and above sometime in 2010 or 2011. The main reason: as we are in the fight to the depletion of oil reserves in the world and this depletion is happening at an alarmingly faster rate.

Despite the limited supply of oil, the demand is expected to grow in the near future, as an average American uses two times the amount of oil used by a European, four times the amount used by Japanese, 12 times the amount used by a Chinese consumer, and 30 times that of an Indian consumer. This is when there are almost 3 billion people in the world living in poverty without the luxury of oil. Just imagine when these people are lifted out of poverty and start oil consumption, how the demand of oil is expected to grow. Bottom line: Unless we find a replacement to oil, the existing stock of oil is going to shrink day by day. Some estimates suggest that it may take 35 years from now for the oil to run out – that is assuming that there is no demand increase, or population increase.


  1. heheh. Not Just oil I guess. This is the law for almost everything. Maybe it'd be a good idea for us to store up some oil when available at a lower price, Still then, I didn't forget we yet are to saw the very basic food items before thinking of other things. What a unique country and a special economy we are in!!!!! Guess economists like you should start thinking of naming our unique economic system.

  2. Well my clock had been ticking for a long time and expecting that last barrel of oil to be auctioned in ebay!!!!

  3. What blasphemy! Haven't you heard the Adaalath guys preaching that God's natural resources never run out? You haven't heard our government claiming that Maldives' fish stocks will also never run out? Apparently it seems that huge stocks of lobsters, sea cucumber and groupers went into hiding, so some misguided Maldivians who strayed from the true path of Islam spread this lie that Maldives' seas ran out of those live stocks.