The Inevitable Correction While the fundamental factors of peak oil and rising demand provided the foundation for high prices, the market’s extreme volatility in 2008 made the spike unsustainable. Traders worried about supply disruptions in the Persian Gulf, and this fear allowed for a "risk premium" to be added to the price of every barrel, regardless of actual shortages.
Analyzing the Peak of 2008: Why Oil Prices Reached Record Highs
Rising Demand from the Emerging Markets On the demand side, the world economy was experiencing a period of robust, broad-based growth. As institutional investors, pension funds, and hedge funds sought refuge from inflation and looked for diversification, they poured trillions of dollars into commodities.
When the dollar loses value, commodities priced in dollars become cheaper for holders of other currencies, increasing demand. The spike in oil prices to record highs in 2008, with Brent crude peaking at over $145 per barrel in July, was the result of a complex convergence of geological, financial, and geopolitical forces.
Analyzing Why Oil Prices Peaked in 2008
The Brent crude price fell to below $40 by December of that year, demonstrating the violent duality of a market driven equally by physical scarcity and financial euphoria. The sharp global recession that began in the third quarter of 2008 dramatically reduced industrial activity and transportation demand.
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