Inflation-Adjusted Oil Prices

Here's a little chart that shows the inflation-adjusted price of oil (in US dollars, of course) --



There are two interesting things in this chart. First, there have been two spikes in "real dollar" oil prices: One prolonged one that started in the early- to mid-70s, and the one we're in now.



Secondly, you'll note that we just passed the highest level recorded back in 1990.



I, for one, believe that prices generally "return to the mean" which would be around $34. This may be a little unrealistic, due to the fact that China and India have become major consumers of oil over the last few years, all the while the world's oil reserves have gotten smaller.



The double whammy of increased demand and lower supply will cause prices to rise. But by how much? I'm hearing in the usually bearish commodity markets that many believe oil will drop to the $70 range. I would bet on this for the short-term future. Long term, we're way above $100 and may never see double digits again.



But everybody said this in the 70s, 80s, and 90s, too. All wrong.



Image contributed by InflationData.com.



Like what you've read here? Subscribe to Money Hacks by Email.