04 January 2008

Oil price over US$100 per barrel

On Wednesday, 2 January 2008 the price of oil briefly hit US$100 before dipping back down. The Financial Times reported that this record price was a result of a small trade.

As well as considering geopolitical factors such as "tension" in the Middle East and other oil producing regions, simple analysis of supply and demand is a good place to start when looking at any market and that for oil is no exception. One of the key factors in recent years is clearly rising demand for oil from China and India as a result of their strong economic growth, a point that the 27 member International Energy Agency has been highlighting.

Another factor to be considered is the impact of the fall in the relative value of the US$ against other major currencies. With respect to the New Zealand dollar (also known as the Kiwi) the National Bank of New Zealand provides a good set of graphs that give a clear picture of recent trends. The New Zealand Ministry of Economic Development's web site has information on both the price of crude oil and refined product in New Zealand dollars.

For a fuller picture when looking at the historic price of oil one must also consider the impact of (and on) inflation and the trend in the proportion of household spending (both direct and indirect) on oil products. In December 2005 the Reserve Bank of New Zealand published an article entitled "Oil prices and the New Zealand economy" by Felix Delbruck.

Regardless of the incentives that will be provided by carbon taxes and emissions trading schemes, the higher price of oil gives consumers, particularly in the transport industry, a strong incentive to look for ways to reduce their consumption.

IATA provides a Jet Fuel Price Monitor NEW that is updated every week.

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