Where are oil prices headed in 2010? Forecasts for the end of the year are all over the map, from over $100 a barrel to under $50. The difference hinges mostly on assumptions about whether the economy will recover or relapse. But it may be that price volatility has become an inherent feature of the oil market-and fossil fuel markets in general-for reasons that can perhaps best be explained with the help of a little history and an old children’s story.
Once upon a time (about a dozen years past), oil sold for $12 a barrel and a lot of people thought it would get even cheaper because the market was glutted. But instead the price rose: many big oilfields were aging and yielding less, and it was getting harder to find new ones-especially in places easy and cheap to drill. So the glut eroded and petroleum prices rose. Seeing a perfect opportunity (a necessary commodity with stagnating supply and growing demand), speculators drove the price up even further.
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