January 3, 2008

$100-per-barrel oil all about speculation, analyst says

Kingston, Ontario – Crude oil hit US$100 per barrel yesterday for the first time in history, but its spectacular rise has everything to do with speculation, said Dr. David Detomasi, professor of international business at Queen’s School of Business in Kingston, Ontario. The price has little to do with market fundamentals, he said.

Dr. Detomasi said that the current price spike is due to speculation, affected by the onset of the winter heating season, geopolitical concerns in areas such as Venezuela and Iran, and some lower inventories in the U.S.

“It’s a bubble, and the question is not if, but when, the air will be let out of the balloon,” Dr. Detomasi said. “The price should ease somewhat over the coming year, levelling off in the $60-$70 range.” He added that the $100 barrel is about psychology, not geology; $100 isn’t significantly different from the mid-$90s we have faced in the last few months, but it “makes for great headlines”, and consumers should focus on the overall trend, not the price.

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