April 6, 2011 / 7:32 PM / 7 years ago

This Time Around, Higher Oil Prices Could Be Here to Stay

Crude oil futures topped $108 per barrel on Monday, amid continued conflict in Yemen and Libya. Though oil inventories in the United States have actually increased significantly in recent months, prices have continued to rise in anticipation of new demand stemming from a potential economic recovery, and the danger of lasting unrest in the Middle East.

“The more one looks at uprisings in the Middle East, the more one realizes they will not be easy to resolve,” said commodities trader Christopher Bellew to Bloomberg. “At the same time, oil demand is relatively inelastic to higher prices.”

In recent weeks, there has been a growing sense that this latest oil price spike may not be as temporary or “speculative” as once thought. Rising demand from China-which the country’s biggest producer, PetroChina, now says will grow 14 percent by 2015-is considered among the most significant factors driving the bullish longterm outlook.

A senior Department of Energy confirmed this view in an interview with Platts Energy this week, indicating an opinion on the part of the administration that this time, higher oil prices are here to stay. ”What’s different is that if you look at the growth of other economies, like China and India...I think the demand for oil is going to go up, and that [oil] prices in the future will likely on average go up" said acting Undersecretary of Energy, Arun Majumdar.

Too Little, Too Late?

Despite a pledge from President Obama last week to reduce oil imports by one-third in the next decade, there is probably little that can be done in the near-term to shield Americans from the shock of rising oil prices that many worry could stifle a recovering economy. Though the United States figures to play less of a role in creating new demand thanks to rising fuel economy standards and newly announced efforts to encourage domestic drilling, overarching trends in the global market make it unlikely that gas prices will return to lows seen in the past few years.

Seasonal consumption of gas in the U.S. has actually fallen slightly from last year, and even further declines wouldn’t do much to reverse the upward momentum of global demand-or the price hikes that will accompany it.

In order to minimize the financial fallout from a prolonged uptick in gas prices, consumers will have to act on their own behalves by seeking out more efficient vehicles. Some already are, but as gas prices continue to edge toward the $4 mark-with the summer driving season still months away-the potential for a massive rush to hybrids and high-MPG gas cars grows.

Reprinted with permission from HybridCars

Our Standards:The Thomson Reuters Trust Principles.
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