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It happened in 2008, could it happen again? George Murphy predicts that oil prices will soon crash. (image: greekshares.com)
The prices of crude oil and refined petroleum products have risen steeply this year, and many oil traders and analysts expect prices to continue their climb throughout the summer, as economic recovery and the summer driving season combine to swell fuel demand. However, some are dissenting from this view. On Tuesday, noted peak oil proponent Colin Campbell said that crude oil faced a price ceiling at $100 a barrel. The same day, an oil researcher in Canada predicted that oil prices would replicate the price collapse of 2008, when the price of a barrel of crude oil plunged from $147 to $33.
George Murphy works for the Consumer Group for Fair Gas Prices, and he told Newfoundland and Labrador’s The Western Star that today’s oil market resembles the market in 2008 before oil prices went into freefall:
I think we’re looking at pretty much the same scenarios that we saw in 2008, a lot of investment in oil prices driving up energy prices. We’re also starting to see some sign that price is starting to bother people. We’re seeing interest rates go up, too, at the same time, I think we’re actually being set up for an oil price collapse, that’s my opinion.
Like Campbell, Murphy believes rising prices will reduce demand for oil. Consumers will combat higher prices with conservation: driving less, buying fuel-efficient cars, and turning down the thermostat to use less heating fuel. As demand plummets, so will prices.
Climbing oil prices could also be a detriment to the perilous recovery of the global economy. As consumers are forced to spend more money on gas or heating oil, they will not only try to curb spending on energy, they will also cut spending across the board; in Murphy’s words, “they’re just going to put a kibosh on consumer spending.” That would lower demand for all goods and could stall any nascent economic growth.
However, Murphy leaves aside one factor that many believe propels current and future increases in the price of oil: growing demand from the developing world, especially China and India. Murphy is right that demand for oil in Canada (and in the US and Europe, as well) could fall if prices get too high; no less an authority than the International Energy Agency (IEA) has said that oil demand has peaked in developed nations. But the IEA also noted that global oil demand could still rise, driven by growth in the developing world. Since crude oil, heating oil, and gasoline are commodities traded in global markets, increased demand in China (or anywhere) affects retail prices in North America and Europe.
The weeks and months to come will prove Murphy right or wrong. But even if Murphy is right about the way consumers in Canada and other developed nations will respond to high oil prices, that doesn’t mean he’s right about the direction oil prices will take
