Crude Awakening: Price of Oil Tops $130 a Barrel

Crude Awakening: Price of Oil Tops $130 a Barrel

Is $100-a-barrel oil here to stay?

By JR Minkel

Brace yourselves, drivers. It's going to be a very expensive ride. The price of oil topped $130 a barrel this morning on the world market. Prices then ticked up again following release of a weekly U.S. Department of Energy report, which found that national oil and gasoline supplies were lower than expected last week. At the time of this writing, the New York Mercantile Exchange listed the price of crude oil at $133.58 per barrel.

Contributing to the record price: the weak U.S. dollar, greater demand for diesel fuel following last week's devastating earthquake in China as well as increased spending on gasoline by U.S. drivers, according to Thomson Financial News. On Friday, Saudi Arabian officials rejected President Bush's plea for increased oil production on grounds that the Organization of the Petroleum Exporting Countries (OPEC), the oil-producer cartel of which the country is a member, had already boosted production earlier this month and that speculation by investors was driving the surge in oil prices, up more than 30 percent since the start of the year.

London newspaper the Telegraph warns that $100-a-barrel oil prices could be here to stay—or might soar even higher, noting that long-term oil future prices have risen unusually sharply and that several analysts' predict tabs approaching $200 a barrel in coming years. Geologists and economists fear that despite seemingly plentiful oil reserves, oil production may peak and begin to decline early this century (a phenomenon referred to as Hubbert's peak after the American geophysicist M. King Hubbert). Researchers worry that a sharp spike in oil prices would follow such a peak unless counteracted by falling demand.

Investors "are starting to believe that the world is going to run out of oil," says Phil Flynn, an energy investment analyst with Alaron, a global futures-trading firm. But he says the price run-up can only last so long. "These kind of markets end like thieves in the night," he says. "You never know when it's going to end. … But have no doubt that it's going to end."

When gasoline prices hit $3 per gallon at the pump in 2005 in the wake of hurricanes Katrina and Rita, Scientific American urged lawmakers to consider raising the federal gas tax and to require American automakers to boost fuel economy standards for cars and light trucks by 40 percent over the next decade. Late last month, presidential hopefuls John McCain and Hillary Clinton endorsed a gas tax "holiday" over the summer, which professional economists roundly criticized.

In its September 2006 special issue on the future of energy, Scientific American analyzed a suite of potential energy-saving measures, including nuclear power, alternative fuels and sources of renewable energy.