With oil at a record high and forecasts calling for spikes up to $200 (U.S.) a barrel within the next two years, it is no surprise some commentators are balking at the possibility that the world can continue to digest sharply higher energy costs without suffering.
Douglas McIntyre, who contributes to the 24/7 Wall St. blog, argued that oil prices are at a critical point for the global economy. A little higher, and problematic inflation will kick in, creating havoc. That's why he believes the Organization of Petroleum Exporting Countries, or OPEC, can't allow prices to rise much further.
“The operating theory of most oil analysts and economists is that OPEC will let prices go up and up. Nothing could be further from the truth,” he said. “Goldman Sachs has said oil could spike to $200 a barrel sometime in the next two years, but that won't happen.”
He said that OPEC ministers are naturally profiting from the higher oil prices, to the tune of tens of billions of dollars a year. But they are well aware that there is a tipping point at which the higher prices take inflation from a concern to a “column of disaster” – potentially triggering a global recession that harms OPEC producers as much as anyone else. They learned this lesson in 1973.
“OPEC's machinery gets broken if oil demand takes a sharp plunge,” Mr. McIntyre said. “If oil prices move up another 10 per cent to 15 per cent, the odds of that happening go higher geometrically.”
Crude oil traded as high as $122.31 on Wednesday morning.
