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83 comments on Countdown to $200 oil (10) - oil at $115!!
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83 comments on Countdown to $200 oil (10) - oil at $115!!
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Making a guess, in the absence of shortages the price of oil can not rise faster than refineries can pay for the next shipment of crude oil. For example, an oil refinery buys 1 million barrels of crude oil for $100 / barrel and has a profit margin of 10%. The oil is refined and the products are sold for a gross amount of $110 / barrel. In the meantime the price of crude oil rises to $110 / barrel forcing the refinery to use all of his profit to purchase the next shipment of 1 million barrels of crude oil. Refinery margins were very small while the price was rising this year. This places an exponential limit on the rate at which the price of crude oil can rise when the supply is insufficient to meet demand.
A 6% increase per month will cause the price to double in a year.
That is what happened between July 2007 - July 2008.
I am not suggesting that this will continue but even a 30% increase in price every year will be very bad for the economies of the oil importing countries.