Jan 18, 2010: Oil Prices

Earlier today in London, Goldman Sachs analyst, Jeffrey Currie, discussed their view that oil prices will continue to rise over the next two years, as supply shortages will begin to hit the global market. Last month, Goldman predicted 2010 prices near $90 and 2011 prices near $110. Grant Smith of Bloomberg reported this earlier on Monday while most of the Western Hemisphere was sound asleep. Currie said that capacity will reach pre-financial crisis levels. Investment in exploration and drilling has been limited due to financial and political concerns, especially in Saudi Arabia and Iran with the former having state-controlled production and the latter having economic sanctions. I did find it interesting that Goldman attributed the rise to increased demand from BRIC nations, but did not mention concerns in the US dollar, which some believe is the only reason oil continues to hover around $75 a barrel today. For my friends who are still learning the market, all commodities are priced in American dollars and when the value of the US dollar falls, commodities like oil will rise in relation. Although today is a US holiday, futures continue to trade in America. New York crude closed higher following the news, up 0.3 percent to $78.25, but probably on very little volume. Canadian stock markets also advanced with the energy sector climbing 0.5 percent, led by Imperial Oil [IMO:TSE] and Suncor Energy [SU:TSE]. So what does this mean for the average consumer? Well, with all things being equal, be prepared to see fuel prices above $1 per litre or $4 a gallon for the next few years.