Will Fuel Be At $100/Barrel?

 

I was reading an article called “Swaminomics” in the Sunday Times. The author, Mr. Anklesaria, predicts that fuel prices will be sub $100/barrel by early next year. He justifies it with very economical theory of demand and supply. He points how productions will go up in second part of this calendar year and how demand is fizzing out thanks to sky high prices. The slackened demand is very evident in US and other western in market.

I will love to believe that what he predicts happens, but I have my own doubts about the same. My reasons for the same are two folds.

Firstly, I will agree that the demand is finally coming down to an extent, but as we have seen in past half decade most of the price rise is also because of demand from south East Asian countries rising. India and China are subsidizing the fuel prices excessively and thereby insulating the end user from price fluctuation.

Secondly, the more important reason I believe which will affect the price hike, is the supply. The supply of fuel is not going to increase as proportional to increase in demand. But the point which is more important is because OPEC (Organization for Petroleum Exporting Countries) will never let it happen. In my opinion OPEC runs like cartel, they ration the supply and monitor it so closely that they never let the price ease off. They make sure that oil is never sold in open market conditions, and there by not letting market determine the prices. The simple economics theory of “Less the supply – More prices” is well itched into their mind, and they make sure they never let the supply pressure to ease off and thereby keeping the prices artificially controlled. This in my own terms I refer to Pseudo-Open-Market Economy. It’s nice mid path which can be more or less equaled to “Managed float” for currency exchange.

In essence, I will say that prices might marginally go down, but $100 is just unimaginable.