Energy Prices spike – for now

The factors that have pushed energy prices through the roof this winter are still in place. Threatening war in the Middle East, minimal oil production from Venezuela, and blizzards in the Eastern US have combined to raise the average fiscal year price for crude oil to US $28.14/bbl and gas to Cdn $4.10/mcf. As of February 21, the weekly spot price for West Texas Intermediate crude was $36.76. You can almost see the dials spinning on the provincial surplus.

Trends for the near future depend very much on what happens in Iraq. If the Americans invade, and if they are able to capture the Iraqi oil fields more-or-less intact, we can expect oil prices to start dropping. The new Iraqi regime, whoever it is, will need to export large quantities of oil to finance reconstruction, and the only limiting factor will be the condition of that country’s petroleum infrastructure.

Once Iraqi oil comes on-line, we can expect to see oil prices drop and remain at a much lower level for some time. Then, of course, we can look forward to the provincial government whining about the "volatility" of energy prices, as though this was something new. Natural gas prices, however, should show more medium-to-long-run stability.