The Hamilton Spectator website's breaking news section carries an AP report that oil just hit $88 per barrel.
The article includes some rosy commentary about the influence of political instability in the Middle East causing traders to become jittery, but this smacks of post hoc reasoning. Is the Middle East more politically unstable today than it was in the summer, when fear of a US attack on Iran was in full swing but oil was $10 per barrel cheaper than today?
The underlying fact is that light sweet crude, the benchmark for oil futures pricing, is already past its global production peak and declining.
Through a combination of heavy sour crude, deepwater and non-conventional oil, the total oil production has held steady at around 84 million barrels per day for the past three years. However, this will increasingly come under strain in the next few years as conventional supplies in places like Saudi Arabia continue their decline.
Barring a major global recession, oil will continue to creep toward $100 per barrel. After that psychological barrier, what comes next?
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