Oil at US$1000/bbl?

If we could only store oil-filled barrels in our homes without the fear of getting burned alive while sleeping… we would probably do so.

The recent surge in oil prices is truly mind-boggling. Just ten years ago, this non-renewable resource was selling for just under ten dollars a barrel. It was practically taken for granted. With the straight line increase of demand over the past few years, prices have skyrocketed to a high of around USD 147/ barrel. Some put the blame on commodity traders and hedge fund managers who speculate that oil prices would go even higher, thereby creating an artificial demand that put more upward pressure on prices. Others point fingers to emerging China and India, whose thirst for energy has never been on such an unprecedented scale. These two countries, with a combined population of nearly three billion, consume 8 million barrels of oil per day. If these two giants’ per capita consumption were to reach 69 bbl/ year (the current per capita consumption of the US), the 8 million consumed now will balloon to 158 million barrels a day.

Let us do the math. Research would show that the current proven reserves of oil producing nations, at current rates of consumption, have around 65 years to completely eradicate the supply of oil in the world. That’s less than two generations! But world oil consumption is not static. With the transformation of highly populated countries to economic powerhouses, consumption is expected to rise further. The good news is, supply is also not static. While it is a non-renewable resource, there is still much undiscovered oil in the world. Oil explorations have started in remote regions such as the Arctic, speculated to hold around 10% of the world’s supply of undiscovered oil. It would, however, take a long time before infrastructure can be set-up to pump oil from these far-flung regions of the world.

Time will only tell when demand will outpace supply by a huge margin… If demand does not slow down, one day, we would be waking up to US$1000 per barrel of oil!