By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

With the price of oil reaching the unthinkable $100 per barrel, you cannot help but ask the question, “How high will the price of a barrel of oil go in 2008″? In the past four years the price has quadrupled, the days of cheap oil are over and the world as we know it is going to change.

The price of a barrel of crude is determined and influenced by several factors: drilling cost, production cost, supply, demand, political tensions, geopolitics, investment funds, speculators, etc. In the past two decades, the price of oil has largely been managed by OPEC.

How many times have you read, “OPEC is meeting to discuss oil prices”? I have always been amazed how the greatest industrialized nation of the world anxiously awaits the decision from OPEC, to determine if the price of oil was sufficient, thus, influencing the financial markets of the world. OPEC would simply increase or decrease production to control the price of crude to their satisfaction.

Why hasn’t OPEC made the necessary adjustments to bring the price of oil down from its current high? First, I believe the obvious, the OPEC countries like $100 oil. Secondly, the OPEC countries no longer have the sufficient surplus production capacity to affect the price of oil, which is contrary to what they tell the rest of the world.

In reality, the unprecedented economic growth of both China and India has sucked up the world’s spare oil production capacity. In the past three decades, extreme price fluctuations in the price of crude oil have been driven by events: 1974 Oil Embargo, 1980 Iranian Revolution, 1986 Net Back Pricing Introduced (Saudi Arabia flooded market to end the Cold War), 1990 Iraq invaded Kuwait, 1998 Asia economic downturn, and 2003 the Iraq war. Unlike price fluctuations of the past, today’s price is “demand driven,” which means the price is more permanent and likely to continue to rise.

So, back to the real question everyone wants answered, and no one knows the answer to: “How high will the cost of a barrel of oil go in 2008?” Predictions for 2007 were that oil would be around $40 to $50 a barrel and gasoline prices would be around $2.25. Wrong! In 2007 we saw oil at $100 and gasoline over $3.

There is no way to accurately predict where the prices will be, however I do feel that it is a safe bet that we will continue to see increases in oil prices until it becomes too expensive for many consumers, at which time consumers will conserve their energy use. Demand for crude will decline with conservation, thus lowering prices.

Analysts thought conservation would have happened at $75 a barrel, and now $100, yet some analysts predict it will take $150 per barrel oil for consumers to seriously conserve. But what matters to most people is not how much a barrel of oil will be in 2008, but how much a gallon of gas will cost in 2008. I predict we will see $4 per gallon gasoline and that is just the beginning of where we are headed. I can only hope that I will be proven wrong.