What effects oil prices is increasingly a point of debate amongst economists, politicians and investors. The fact is that oil prices have more than doubled in the last 12 months and there are many different arguments as to why the price has risen so dramatically.
One argument states that it is simple supply side economics that is resulting in oil price inflation. It is estimated that we have now extracted and used just over half of the worlds oil supplies. With demand for crude oil higher than ever and showing no signs of slowing this lack of supply only means one thing – higher oil prices.
Traditionally this has been one of the main drivers of volatility on oil prices. Most of the worlds oil rich nations tend to be in areas of political instability, the two best examples being the Middle East and Africa .. As a side note many would ague that the reason for instability in these areas is the presence of oil.
The protracted conflict in Iraq, uncertainty surrounding Iran nuclear program and the spread of Muslim fundamentalism in Africa all seemingly threaten the future supply of oil to the West. Even though current supplies may be unaffected it is just the threat that pushes prices higher.
Oil investors or speculators have also been blamed for some of the price rises recently. With rising price as showing no signs of slowing down more and more investors are viewing oil as a good safe place to invest some of their portfolio.
As more investors enter the oil market seeking a piece of the action prices will be forced upwards to some extent. Many sceptics have said that this happens in all bubbles before they burst and draw similarities to the dot com boom when thousands of individuals were blindly investing in companies with very little knowledge hoping to make a quick buck. The big difference is that oil and other commodities are in limited supply and demand is rising thanks to booming Asian economies. This indicates that commodity investors look set to profit for some time yet.
Now is probably the best time to invest in oil.