The price of WTI crude oil, produced in western Texas, has remained above $80 per barrel for over two months and has exceeded $90 for more than a month. In November, as oil prices hit new peaks and frequently approached the $100 mark, market volatility increased significantly. Although WTI has recently dropped to around $90 per barrel after a sharp decline, the foundation for high oil prices remains strong. It is likely that oil prices will continue to operate at elevated levels for an extended period, with major gains expected. The $100 threshold could still be reached again.
When adjusting for the depreciation of the U.S. dollar, current oil prices have already surpassed $70 per barrel. In addition to inflation, today's oil prices are approaching the levels seen during the second oil crisis. This indicates that we have entered a phase of sustained high oil prices.
Looking back at the period from 2002 to now, international oil prices have nearly tripled, while the U.S. dollar index has declined by 30% over the same time. Due to the weakening of the dollar, between 2002 and 2006, there was a 22.8 percentage point difference between the rise in USD-denominated commodity prices and those calculated using the SDR. That meant the dollar lost 22.8% against a basket of currencies during that time. This year, the dollar has also depreciated by about 10%. It is estimated that more than 30% of the increase in oil prices since 2002 can be attributed to the dollar’s depreciation. After removing this factor, oil prices should have been over $70, but they were less than $30 at that time. Compared to then, today's oil prices are clearly at a very high level.
Historically, global oil prices have gone through three major surges. The first occurred during the 1974 oil crisis, when prices rose from under $3 per barrel in 1973 to over $13. The second surge took place in the late 1970s and early 1980s, with prices climbing from around $15 per barrel in 1979 to a peak of $39 in February 1981. The third surge happened in 1990 during the Gulf Crisis, when oil prices skyrocketed.
Currently, the U.S. imports crude oil at around $80 per barrel, and after accounting for inflation, the price was $93 per barrel during the second oil crisis. During the Gulf Crisis, imported crude oil cost less than $52 per barrel. It is clear that today’s oil prices far exceed those of the Gulf Crisis, and they are even surpassing the levels of the second oil crisis, creating a sense of "invincibility at high altitudes."
It is expected that global economic growth will reach 4.8% to 4.9% next year, with oil demand increasing by 1.3 to 2 million barrels per day—a significant historical growth. On the supply side, non-OPEC production has underperformed, and OPEC’s output increases are slowing down. Non-OPEC production is expected to grow by only 1 million barrels per day next year, which is lower than the projected demand increase. International forecasts suggest that global oil demand for OPEC will rise by 1.34 million barrels per day this year, while OPEC expects to cut production by 230,000 barrels per day. As a result, there is little incentive to boost output. On December 6, OPEC, which had just announced it would maintain current output levels, also suggested the possibility of cutting production.
Domestic consumption has risen steadily, but output growth has stalled, and OPEC exports have been declining this year and are expected to continue doing so next year.
Historically, supply shortages occurred in 1999 and 2002. However, OPEC responded to low prices with cuts, whereas this year, supply is falling short despite high prices. This suggests that the current supply-demand imbalance will not change quickly, making high oil prices relatively sustainable.
An oil price inflection point may occur in 2010. Next year, the U.S. will hold a presidential election. Public sentiment leans toward a Democratic victory, and if the Democrats win, they are likely to take measures to intervene in oil prices once political stability is achieved in 2010. At the same time, the U.S. dollar’s depreciation may be curbed. This could create a turning point for oil prices, coinciding with the global economic cycle and the timing of large-scale oil investment capacity coming online since the price surge. However, given the reduced volatility in recent years, the drop in oil prices is unlikely to be steep—perhaps settling around $60 as supply and demand return to balance.
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