Is $100 Oil Inevitable?
Jan 14th, 08
A Newsweek article dated January 14, 2008 by Daniel Gross paints a dim picture for future energy prices in America. According to the article, global demand for oil will continue to drive energy prices upward even with demand stagnating in America.
It was just over a week ago when a barrel of oil reached its new benchmark of $100. Although the record made headlines in the newspapers and received national media attention, it really wasn't a record. When adjusted for inflation, $100 oil only represents about 95% of its value in the early 1980's.
The only real record broken in recent years is the sharp increase in demand for oil on a global basis. While Americans are trying to suppress domestic oil consumption by purchasing smaller, more economical cars and hybrids, developing foreign countries are increasing comsumption at an alarming rate. It's a trend that doesn't show any signs of slowing.In 2007, the global demand for oil increased by 1.4%, bringing total world demand to about 84.2 million barrels daily. America's demand accounts for about 25% of the total, second only to Asia. The International Energy Agency forecasted that global demand for oil will average 87.8 million barrels per day in 2008.
The issue of $100 oil isn't just a demand problem. In “Economics-101” we all learned that the price of a product is generally determined by both the demand and supply of said product. If oil was an unlimited resource or even more abundant, cheap oil would dominate markets. But the reality is that we're running out of cheap, easily accessible oil. In the past, OPEC could drive down market prices by simply increasing production. Those days are numbered.
As global demand surges in the future, OPEC will have trouble increasing production to match the uncharted demand. The outcome of high demand and low supply will always result in premium prices. Further escalating the problem is the OPEC countries themselves. Although they've increased production tremendously over the past decade, their consumption has increased proportionately, representing nearly 75% of the total increase in production.
Between the sharp increases in demand by developing countries and the brutal fact that oil is not a renewable resource, someday soon $100 oil will be considered “cheap”. We should continue to due our part and purchase more economical cars and cut corporate consumption whenever and wherever possible, but unless there are huge new discoveries in the near future, the end result of America's efforts will ultimately prove to be futile.