Another Oil Bust ?!

Are we heading for another crash ? From June through to August 2008 oil reached a peak level of about $140 per barrel. We are currently at $127 per barrel. Guess what happened after the peak - you can cheat by looking at the graph - it crashed to $30 per barrel.

What basically happened was that all of a sudden everyone realized that oil was too expensive and more and more people reduced their usage, this meant that there was a shock in demand and since all of a sudden demand plunged, so did the prices.

An increase in oil prices affects everyone and by everyone, I actually mean everyone ! This includes people who don't drive cars. Why ? Because increased oil/petroleum prices mean an increase in food prices, an increase petroleum products (i.e. plastic bags/bottles, synthetic clothing, frozen food packaging) prices, an increase in transportation costs, ... People who drive just have another headache.

An example would be for a working person who has to drive to work every day and then takes trips on the weekends. If for example he used to pay an average of $80 a week on filling his car when prices were $60-80 a barrel he would now have to pay an average of $160 a week on filling his car. This means that per month the person has about $300 less to spend. That's massive for the average Joe who only earns $1500-2500 a month. This however is only part of it, since all of his food would have increased in price too.

Of course, what does Joe do ? He decides not to go on his weekend trips anymore and decides to carpool to work with his friends, so instead of spending $300 a week, his spending goes back to its original or less. This, and the same thing happening for every company or person in the world that decide they're paying too much leads to massive plunge in demand, which in turn makes oil prices crash again.

What will happen exactly I don't know, but I don't expect oil prices to go up much past $160 or maybe 170 per barrel, before they crash again. This of course is very speculative of me and I might be totally wrong, but I know I would not want to pay triple prices at the fuel tank every week and I'm pretty sure most people agree with me.

I'm not sure what the effects of another oil bust might be, but I guess we'll see.