Too high, becomes unsustainable. Oil prices are at nearly $100 per barrel. Its concerns for most of the countries except Oil-producing countries. Breakingviews.com says in their latest (11/07) report. Ten reasons -
1. Amount of oil in storage tanks around the world is all-time-high at 4.2 bn barrels at the end of June this year.
2. BP said: Supply below ground is now 1.4 trillion barrels, up 12% in the past 10 years. That excludes estimated 1.7 trillions locked reserve in Venezuella.
3. Production pace is increased. There are 45% more oil rigs in service today than three years ago. These rigs are more productive too.
4. The cost of production : Royal Dutch Shell's lifting cost per barrel was about $9 in 2006 as per energy research firm John S. Herold. Extracting oil costs Saudi Aramco around $4 to $5 a barrel.
5. Iran Vs.US : US taking practical approach, and Iran can not cut down their Oil export as they highly depends on it. (50% of their GDP)
6.Consumption : US Oil consumption fell by 1.3% and worldwide it grew by 0.6% according to BP. Exxon Mobil cut its long term forecast for oil-consumption this week.
7. High prices are forcing governments to cut their subsidies. China increased oil prices by 10%. That should curb demand growth.
8. Energy from oil is costlier than from natural gas. Normally Oil is 6 to 10 times expensive than natural gas, it is 13 times now.
9. Dollar : Weak dollar is poor argument. Since 22 Aug dollar gone down 8% while oil went up by 40% since then.
10. Speculation is artificially boosting prices. Credit crunch last August shifted financial players to shift their bets to oil market from other markets.
And as a golden rule, when Oil and Gold prices go-together.. When oil will fall freely I am sure gold too will.