Oil has been referred to as “black gold” for long enough that nobody thinks twice about the expression anymore, but Cambridge Energy Research Associates (CERA) has posed an interesting premise about oil. A press release put out by CERA in mid-March addresses what the company refers to as “the new fundamentals” that are pushing up oil prices.

CERA contends that fundamentals affecting oil price are changing and that supply and demand are less significant than things like the credit crisis, global financial dynamics (including the dramatic drop in the value of the US dollar), and new cost structures. The question that comes to the fore is whether a spreading recession will reverse oil’s rise.

Daniel Yergin, chairman of CERA and executive vice president of IHS, who shared his views on oil, credit and pricing, is probably best known for his books, The Prize: The Epic Quest for Oil, Money, and Power, and Commanding Heights: The Battle for the World Economy. Yergin clarified his assertion that oil is the “new gold” by explaining oil as “a financial asset in which investors seek refuge as inflation rises and the dollar weakens.”

According to Yergin, “The credit crisis has been fueling the flight to oil and other commodities, and that will last until the dollar strengthens or the recession becomes more pronounced.”

James Burkhard, managing director of CERA’s global oil group, supports Yergin’s claim. He cited the latest IHS/CERA Capital Cost Index, which shows a doubling of oilfield costs over the last three years. “Adding to this pressure is increasingly heavy fiscal terms on oil investments in the form of higher taxes and greater state participation in oil projects. The net result is much higher oil prices are needed to support development of new oil supplies,” he said.

Burkhard explained that these financial and cost structure dynamics are new in the sense that they were not strong forces in determining the oil price in the 1990s or even earlier in this decade. “The old fundamentals ? the balance between demand and supply ? still matter, but it is these new factors that are the driving force behind the record high,” he said.

Yergin pointed to the falling demand for dollars as a factor that is just as important as the rising demand for oil in determining the oil price.

According to Burkhard, further weakening of the dollar, compounded by higher industry costs, could push the price of oil to new records, similar to the US $120-plus level identified in CERA’s Breakpoint Scenario in 2006. “But the biggest offset in the other direction would be the spreading of the economic downturn beyond the United States, which would both weaken demand and strengthen the dollar against other currencies, reversing the upward surge in oil prices.”

Other industry analysts seem to agree with Burkhard and Yergin. Jim Wicklund principal and portfolio manager for Carlson Capital LLC addressed some of the same concerns at the RMI Oilfield Breakfast Forum in Houston on March 28. “The biggest reason oil is where it is today is the dollar,” he said.

Wicklund also pointed out the status of the US market, which he described as, “The worst it’s been since the Great Depression,” and discussed the impact of the market on international investment.

Dependence on oil and gas puts the developed and developing worlds in a predicament in a number of ways, and that isn’t likely to change according to Rod Nelson, vice president of Schlumberger Ltd., who also participated in the forum. Nelson said fossil fuels will make up 75% of the world’s energy sources through 2030, noting that global demand is growing and that operators are going to be hard pressed to keep pace. “These are complex, long-term issues,” he said.

Obviously, growing dependence on fossil fuels makes them considerably more significant in economic terms worldwide. As commodities, hydrocarbons have increased in value at a record rate over the last few years. It isn’t surprising that investors see oil and gas as solid lucrative investments at a time when many of the formerly solid investments have crumbled.

According to Wicklund, although gas has been “dramatically more volatile than oil,” the numbers for both keep moving up. On March 17, oil hit $112/bbl, and gas was at $10.30/Mcf, the highest either had reached since Jan. 2006, Wicklund said.

Volatility in oil and gas prices illustrate how the changing fundamentals are affecting the world at large. Service companies are making record profits, drilling contractors are seeing the highest day rates in history, and operators are working harder for returns on assets that Wicklund said are less than 10%.

Consumers, meanwhile, are reaching deeper into their pockets to pay for the many day-to-day necessities that are affected by the price of oil and gas.

And the situation isn’t likely to change.

That’s not very good news for consumers in general, but it’s great news for the oil and gas industry as a whole. “The bad news,” Wicklund joked, “is that oil can drop to $90/bbl.”