Earlier this year we reported on comments made by an Indian minister that he thought oil could hit $150 a barrel this year.

At the time he seemed to be over-exaggerating the danger but with oil closing in on $120 a barrel last week  that unthinkable level suddenly feels, well, thinkable.

Then along comes OPEC, with a new water level.  OPEC president Chakib Kheli was quoted in Algeria’s El Moudjahid newspaper yesterday as saying he believed oil could hit $200 a barrel.

$200 a barrel  that would be a staggering level  proof, one would have thought, that we are running out of black gold.

Yet OPEC has long maintained that there is no danger of that.  That the high price of oil is down to other factors not least a lack of refinery capacity and that there is no need, or indeed point, in it upping output.

So how then do you square the one view from OPEC that there is plenty of oil, and the other view that it could hit $200 a barrel?

Well, Mr Kheli provided the answer. He said the rising price of oil was wholly down to the falling dollar.In fact he even calculated that every 1 per cent fall in the dollar pushed oil up by $4 a barrel.

If this argument is right, then China will be left in a tight spot. China has been put under pressure by US and EU politicians to let the yuan appreciate, but it seems that the rising price of oil in dollars provides the real reason for China to let its currency rise.

If OPEC is right, and oil will hit $200 simply because of the weak dollar, China will have no choice but to let its currency rise rapidly. This in turn will have all kinds of implications for the global economyChinese imports prices will rise leading to new inflationary pressures in the West and China will import more and export less.  This will be a new development and the implications this will have for the global economy are at this stage just speculation.

But, returning to oil, here is something odd.  Ever since oil started to creep up in price, three years or so ago now, one report after another has claimed it will be just a temporary phenomenon.

It seems there are two schools of thought.  One school of thought says it’s all just a business cycle.  What goes up, must come down it always does, it always will.  Others say,No, demand for oil is reaching unprecedented heights.  They add, this time it is different.

And to that, those who think oil will fall say, Ahhhh, got you. It is well know that the proclamation,this time it is different seems to be proven wrong over and over again. In fact, some say when they hear those words, they know it is time to sell.

It might also be argued that, sure, it has taken time for the crash to occur this time but these things never happen on cue. Some even recite the story of Sir Isaac Newton, who bailed out of the South Sea investment craze, but then, upon noting it was showing no signs of turning, moved back in, just before the crash, and lost a fortune.

Ergo, goes the argument, just because price hasn’t fallen yet it doesn’t mean it won’t.  (Note the parallels here with the housing market  although ironically many commentators who support the view oil will fall in price, because it always does, also say, when talking about house prices, “this time it is different, prices will stay up.”)

Another view put forward to explain why oil has risen too high is that it has been driven up by speculators.  This morning, The Times quoted Michael Waldron, energy analyst for Lehman Brothers, as saying, There has been an increase in financial demand as many funds have poured into oil as a hedge against inflation and the weakening US dollar. This has been the main factor in driving the price in recent months. We do not think the fundamentals justify oil at $120 and, without financial demand, we think it would be trading at $20 to $30 below that level.

This view rather suggests oil is taking over from gold as the place of safe refuge.

Then again, speculators are only putting their money into oil because they believe the long-term fundamentals that say it will rise.

Gold used to have an intrinsic value.People wanted it because it looked good and because of its peculiar properties.  These days, it seems oil is the product with this real intrinsic value.

Who knows, maybe one day our paper money will feature the legend: I promise to pay the bearer the sum of one barrel of oil.

And, putting our tongue firmly in cheek, remember this.  There was a time when money was made of gold.  Maybe in the future money will be made of oil, or at least a substance that is made from oil.  Bear that in mind when people talk about the age of plastic money. Sure, these days we stick it on the plastic, maybe one day we will spend the plastic.

© Investment & Business News 2013