Roller coaster ahead for oil prices

MEDIA RELEASE - 17/12/2008

Cheap fuel prices are a Christmas present that may not last very long, says the carbuyer’s Dog & Lemon Guide.

Editor Clive Matthew-Wilson said today:

“Low oil prices mean that suppliers are already cutting back production. Sooner or later the supply of oil will no longer meet demand, and the prices must go up again.”

“Low oil prices mean that oil companies will simply close down costly oil plants. Examples of this are deep-sea oil rigs and shale oil refineries, which are only really economic when international prices are high.”

“The longer oil stays cheap, the more oil production will be reduced or closed down. When there’s no longer enough oil left to meet the demand, prices will rise. Because of the amount of time it will take to start production again, it is likely that a sudden, sustained rise in oil prices is inevitable in the future.”

However, Matthew-Wilson says that oil prices could drop still further in the short term.

“Demand from China and India was the driving force behind recent high oil prices. Now India’s economy is cooling and China’s economy looks set to nosedive in the near future. These factors seem likely to further dampen oil prices in the short term.”

“The world isn’t running out of oil; it’s running out of cheap oil. The problem is, you can’t run your car off oil in the ground. You have to extract it and refine it first. As oil becomes harder to extract and refine, it becomes more expensive. This means the current low prices will be hard to sustain into the longer term”