Things in the Sky

I figured it would be worthwhile to take a look at oil prices now that a new year has started. Here’s graphs of the latest EIA data of the spot prices for oil and jet fuel from January 2006 to January 6, 2009. As one would expect, the graphs are pretty similar in shape (click on the graphs to see larger versions).

So, where will oil go in 2009? Well, in my completely unprofessional just-finished-my-first-semester-of-college opinion, a rise over the next twelve months would not surprise me in the least. While I do not think $140/barrel oil is coming back this year, anything in the $60-$80 range seems feasible. There are a few reasons why I think oil will rise again:

1. Prices went down due to a shift in demand. Oil did not go down due new sources of oil coming into the market, nor did a new alternative fuel become popular. The global recession brought down prices, and once something resembling a recovery begins, demand will still increase, especially from developing countries like India and China.
2. Inflation. Has anyone checked out the money supply lately? More money going after the same amount of goods and services will lead to higher prices. Yes, the CPI has been negative. I would not be surprised to see that change later on in the year.

Of course, I’m cheating a bit with my $60-$80 prediction. Crude oil for December delivery is already trading near $60/barrel at NYMEX, as of Wednesday evening.

On the bright side, the airlines are better equipped to deal with higher oil prices, as many of the changes they made to deal with higher prices are staying put. It’s not like all of the airlines that installed winglets on aircraft to save on fuel are going to remove them all of a sudden. The airlines have maintained those extra fees to help boost revenues as well.