Uh-oh. While the decline in oil prices to $70 a barrel has been good for drivers, if prices head any lower, it may attract the attention of OPEC. On the other hand, if OPEC tightens supplies, it could attract the attention of ETF investors.
Analysts say that if oil hits $65 or less, OPEC says it will attract their attention. That’s not the lowest price OPEC would be comfortable with, but it’s a price at which they would begin to watch closely, report Fiona MacDonald and Anthony DiPaola for Bloomberg. For today, at least, oil prices are holding their own and are up 3% so far on a positive durable goods orders report.
But what of the future?
“Peak oil” refers to the point at which more than half of the world’s oil reserves are tapped. Once we hit it, global oil extraction will begin to enter a terminal decline. However, investors who focus on how much crude oil is left may be missing the point.
Money Markets for Daily Markets explains that it means the peak of production-the industry’s ability to get it out of the ground and to market, not the depletion of it. Rather, exploitation of unconventional oil will provide additional liquids, but likely at ever-higher costs.
The IEA recently raised its forecast for world oil demand by 1.67 million barrels to 86.6 million barrels per day in 2010. As oil production is and extraction is waning, the demand for oil may skyrocket in the coming years. Are investors ready for that?
- United States 12 Month Oil (USL)
- United States Oil (USO)
- iShares Dow Jones U.S. Oil & Gas Ex Index (IEO)
Tisha Guerrero contributed to this article.
Disclosure: None
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