Growing Alarm About Oil Prices: The $100 Barrel

The International Energy Agency report on oil supply and demand over the next few years showed up in the FT a couple of days ago. Even though it was played big at the paper, not much was said about it in the US. Then, news of the report surfaced in The New York Times.

In short, what the study says is "The pressures on fuel supplies are growing because booming Asian economies are using more fuel to power their manufacturing industries, including the production of a rising number of automobiles. Rapid growth in petrochemicals industries and the spread of low-cost airlines are also lifting demand." The reports also voices concern that production outside of OPEC may be sliding due to unrest in other oil-producing nations.

The agency makes the further point that biofuels will still be a tiny portion of the market five years from now.

Without the factors mentioned in the survey in place yet, oil is pressing $75. While there is a bear case to be made about oil prices, it becomes less compelling by the week. There had been some hope that deep water drilling would create new supply. There has been further hope that the political climate in Nigeria and Venezuela might improve. Or, the sun and biofuel technology would evolve quickly.

But, when it comes to overall demand, solutions like the Prius are just novelties.

If there is one major threat to the global economy over the next decade, it is oil prices.

Douglas A. McIntyre can be reached at [email protected].