High Oil Prices and Peak Oil

Today world oil prices reached new records.

Again.

Coming as high as $109.72 per barrel in trading, it finally settled at $108.75. Even in other currencies such as the Euro, which has recently been buoyed by the falling dollar, oil was trading at record highs of over 71 Euros per barrel. Economists, bankers, oil executives, journalists, and middle eastern oil states all seem baffled as to why prices keep setting record after record. The market is well supplied, they say. The fundamentals do not support such a high price, they believe. A lot of new supply is on the way, they hope.

In the end, many point an often derisive finger to the 'speculators' -- investors who are dumping money into oil and other commodities in hopes of making a profit. But are mere speculators really to blame for the massive surge in price we've seen in oil since 2003? Is oil coming from $20 to nearly $110 per barrel really something that can be caused by investors? To find the answer, it is informative to delve into the most recent years of the oil story and find out what is actually happening to this vital and risky commodity.

The Great Demand Spike

In 1999 the world was awash with oil. Prices dipped as low as 10 dollars per barrel. Production was increasing at a breakneck pace in areas such as Russia, where it now exceeds that of Saudi Arabia. Mexico was still ramping up production while Canada was in the midst beginning to exploit its massive oil sands. Even the North Sea, which has since seen dramatic declines, was producing almost 2 million barrels per day more than it is now. Back then, demand was no-where near what it is today. In 1999, according to EIA statistics, the world produced about 74 million barrels of liquids per day and about 66 million barrels of crude.