A New York Times business section story Aug. 14, “The Oil Price to Be Scared Of,” notes that the current price shock has significantly lowered the bar for what constitutes a crisis:
Once upon a time, not too long ago, the prospect of crude-oil futures hitting $50 a barrel sent waves of anxiety over consumers, business executives and politicians, evoking the specter of gasoline rationing, not to mention a global recession and general economic mayhem.
Today, the $50 mark is a mere dot in the rear-view mirror and the economy keeps growing at a healthy clip. Is there another benchmark – a new number that everyone is scared of?
For now, the number to watch is $86.
The story notes that at the time of 1981 oil shock, sparked by the outbreak of the Iraq-Iran war, a barrel of oil cost the equivalent of $86 in today’s dollars. “That number still seems a long way away, and OPEC is promising to pump itself dry to meet demand. But consider this: it has taken less than eight months for oil prices to jump by $20 – from $46 to $66. Over the last year, oil prices have increased by 54 percent. In the past week alone, futures on the New York Mercantile Exchange rose to a record – $67.10 on Friday [Aug. 12] – the highest since crude oil began trading on the exchange in 1983. At this rate, oil prices might hit $86 a barrel sometime next spring.”
Goldman Sachs predicted in July that prices could reach $80 a barrel if a hurricane were to destroy platforms and pipelines in the Gulf of Mexico, which accounts for a quarter of US domestic production. “And other worries abound, including growing tension between Iran and the West, the possibility of more pipeline bombings in Iraq, civil unrest in Nigeria, oil worker strikes in Venezuela and, most devastating, the fear of an attack on Saudi Arabia’s oil industry.”
And while the economy weathered $50 a barrel, economists are pessimistic that it could do the same for $80 and up.
Finally, if you think $80 sounds like science fiction, the story closes on this ominous notes:
Here is another number to worry about. Back in March, Arjun Murti, an analyst at Goldman Sachs, made a bold prediction: oil markets had entered a “super spike” period, he said, and if supplies were interrupted, the price of a barrel of oil could rise to – take a breath – $105.
See our last post on the global oil spike.