Oil at $100 a barrel is unthinkable – that has been the wisdom for the last few years. And if it did hit that level, then economic crisis would follow as surely as night follows day.
And yet, oil is now closing in on that “unthinkable” level – and as of yet, the roof hasn’t caved in.
This morning, oil was priced at over $93 on the New York Mercantile Exchange. To put that in context, back in January it was trading at just over $50. At the time many were saying “told you so”, and said oil would start to fall back, it always does. Well, their smugness should well and truly be off their faces now.
The recent rises in oil have been put down to increased tensions between Turkey and Iraq, and storms in the Gulf of Mexico. Supply from Mexico has already been cut by 20 per cent, and now there are fears US facilities could be affected.
Recently, a major landmark was passed, with barely a whimper. For some time, many optimists have dismissed the effect of rising oil, saying that if you allow for inflation, it was much higher in the early 1980s. Well, the inflation adjusted record has gone now, too. In 1981, oil was trading at $37.48, and after allowing for inflation, that’s the equivalent of $84.73.
Mind you, the falling dollar has exacerbated the problem. Interestingly, however, back in 1981 when Iran cut oil exports, and oil was at its previous inflation adjusted high, there were 2.028 dollars to the pound. So actually, in sterling, after allowing for inflation, the price of oil relative to back then is even higher now than it is in dollars.
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