Oil Prices

Oil prices have had quite a run, with the price sitting just above $100 per barrel as of today. There are many factors for this huge price run-up in the last five years. Obviously war in Iraq has affected the supply. There is also an increase in demand for oil worldwide. Another major factor is the perception of the future. If you think that war with Iran is possible or even just continued war in Iraq, this alone can add a big premium. Of course, we never know exactly how much each factor plays into the price.

One other major factor is the devalued dollar. The dollar continues to weaken in terms of other currencies and in general. As Ron Paul recently pointed out, the price of oil in the last couple of years has not increased when measured in terms of gold. The Federal Reserve continues to create money out of thin air (although it looks like at a slower pace more recently), and this eventually leads to price inflation.

It is hard to say where the price of oil will go from here. There are so many factors. War with Iran would almost certainly drive up prices dramatically. A continuing crash of the U.S. dollar would also favor higher oil prices. But there is also a great possibility of recession, which could significantly weaken demand and suppress prices. Although oil looks like a great investment long-term, be cautious about the price short-term with a likely recession.