Oil Prices Hotting Up Again  

The Economist has a cornucopian look at the ever rising oil price up. Peak oil and supply constraints aren't a consideration in their view, quoting the CERA report to back up this claim. Meanwhile the oil price hit US$60 overnight, which some blame on "speculators" plus concerns about upcoming demonstrations in Nigeria.

Why, then, have prices shot up in the past few weeks? There is no shortage of crude oil: the market seems well supplied for now. Look ahead a few years, say optimists, and there is little cause to worry. A provocative new report by Cambridge Energy Research Associates, a consulting firm, even says that there could be a glut. Having carried out a field-by-field assessment of investment already paid for and coming online, its boffins conclude that global production capacity may rise by 16m barrels per day, from roughly 85m now, by 2010.

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In the end, how long today's rally lasts could depend on the final factor pushing up prices: demand. Chinese oil consumption grew by perhaps 15% last year. Although that rate has not been matched in 2005, the world as a whole has continued to guzzle oil.

At some point, of course, high prices will clobber demand and encourage efficiency, fuel switching and so on. Will that happen soon? Probably not. In a new report, Douglas Terreson of Morgan Stanley estimates that the world economy would need to see sustained prices of $85 a barrel before the current robust trend in oil consumption is derailed—and with it, the world economy. And despite the recent run-up, $85 is still far off.