This is today's(16 th April 2008) price. Comparing the price in the past 5 decades, this is the highest price. Even during the Gulf war, the price was not this high. The bad news, as said by my colleagues in WP, is "This is just the beginning." (It actually sounds like a tag line of some scary Hollywood flick).
There is a famous saying in our industry, "For every barrel of oil found, the demand increases by two". This is 100% true. If you ask me, it is quite less. From my end, it seems like the demand increases by three.
The oil price in the international market is based on basic Supply-Demand principles. The Kyoto protocol didn't create any kind of effect in US and the number of cars continue increasing. President Bush completely ignored the protocol but the US keep on stressing India and China to "decrease obsession" towards cars. (To me, it is totally unfair. But that is a whole different issue.) The point is, the consumption of Oil is increasing rapidly. Never before in history, oil wells have been exploited this much. As the demand increases, price gotta go high. That is the rule.
But this is not the only reason. There are many reasons, like tension in Arab countries, plummeting US dollar and Stock Markets. One other main reason is, during the previous down-cycle of the industry, no one took the initiative for the next up-cycle. So the oil companies are not able to tackle the demand.
What does this mean? It means that, the problem is a lot bigger than what we know. It means, the oil price will keep on increasing for years to come and there is nothing we can do about it. We just have to live with it, until the dependence on oil is reduced considerably. Tough times ahead of us for sure. There is one good thing though, Engineers in our sector, will have high demand for the next 30 years at least. (ya, i know i am being totally selfish here)
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