Why Oil Prices Aren’t Going Down

I saw a humorous story a few days ago:

Oil Should Be Around $10 a Barrel

The price of a barrel of oil would be closer to $10 if the commodity wasn’t traded as an investment instrument, given the record-high levels of U.S. oil inventories, Peter Beutel, president of Cameron Hanover, told CNBC Monday.

“I honestly think that if there were no investors using oil as an asset that the price of oil right now would be $10 or $15 or $18, but it wouldn’t be anywhere near where it is,” Beutel said.

First off, the cost of production for most producers is significantly higher than that. The easy, cheap oil is gone. That’s why we are drilling a mile deep for oil in the Gulf of Mexico. But the other reason that oil prices aren’t going down soon is because demand has been recovering. Courtesy of the EIA:

U.S. Petroleum Demand
U.S. Petroleum Demand

That shows that petroleum demand has been steadily climbing for a year, and has recovered to levels last seen two years ago.

This one shows a similar story for imports, albeit with an even steeper rate of increase:

Crude Oil Imports

It is hard to imagine oil prices softening with demand again rising, much less trading at $10/bbl. This is why I am not optimistic for an imminent recovery from the recession. Oil prices are at $75, and demand is rising. And we know what happens to oil prices as demand continues to climb…

Author: Robert Rapier

Robert Rapier is a seasoned chemical engineer with three decades of international experience in the energy sector. He holds undergraduate degrees in chemistry and mathematics, and a master’s in chemical engineering. Robert has worked extensively in oil refining, production, synthetic fuels, biomass energy, and alcohol production, earning several patents along the way. As Editor-in-Chief of Shale Magazine and a prolific author for Investing Daily, he shares his expertise through various newsletters and his latest book, American Energy: A History of Power, Progress, and Change. Robert's insights have been featured on 60 Minutes, The History Channel, CNBC, and PBS, among others. His articles have appeared in top publications like the Wall Street Journal, Washington Post, and The Economist. For nearly a decade, he has covered the energy sector for Forbes.