The Future of Oil Prices

Chart of the Week for August 27-September 3, 2004

Crude oil prices hit record high levels last week reaching almost $50 a barrel but have not surpassed the inflation-adjusted oil prices seen in the early 1980s. Will oil prices continue to rise? Fortunately, oil is sold in futures markets, where producers, users and investors can trade contracts to lock in the future price of oil today. The futures market provides some insight into market participants’ beliefs about future oil prices. For the year, oil futures contracts are up 47% but they point to gradually lower prices for the coming 12 months settling in just below $40 a barrel one year from now. As we have seen in recent weeks, new information can quickly change the price of oil.

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