Oil Is Still Inexpensive Even After Price Surge: Spotlight
By Vladimir Todres
London, Feb. 2 (Bloomberg) -- Oil prices have more than
doubled in the last year, increasing inflation concern in Europe
and the U.S. and causing central bankers to ponder higher interest
rates.
Adjusted for inflation, though, oil is cheaper than when
Richard Nixon was the U.S. president. The price of Arab Light
crude oil, adjusted to reflect monthly changes in U.S. consumer
prices, is now one-third of what it was at its peak in October
1981 after two Arab oil embargoes caused oil prices to rise six-
fold over eight years.
``Oil was an undervalued commodity in the 1990s and now it
seems to be cyclically recovering its fair value, and this is far
from calling oil prices overvalued,' said Beshr Bakheet, managing
partner of Riyadh-based Bakheet Financial Advisors.
...
Bloomberg calculations use prices for Arab Light crude oil
because the history of that type of oil dates to 1950, more than
two decades longer than the history of benchmark Brent crude oil.
Embargo
Petroleum-rich Arab countries, led by Saudi Arabia, imposed
an embargo on oil deliveries to the West after it supported Israel
in the Yom Kippur war against Egypt in 1973. The embargo brought
oil shortages and threw economies in the west into recession.
In October 1981, the price of Arab Light crude oil adjusted
for U.S. inflation was at $40.99 a barrel. The price was at $13.53
a barrel in December 1999, a figure that remains the latest
inflation-adjusted because the U.S. has yet to report January
inflation later this month.
The U.S. Consumer Price Index rose 80.7 percent since October
1981. The CPI represents changes in prices of all goods and
services purchased for consumption by urban households.
...
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