"[T]he rise in oil prices isn't the result of runaway speculation; it's the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth." When you hear people  say otherwise, says Krugman, it's a sign "wishful thinking has trumped pro-market ideology."

Comments

[Wendell Sawyer]

Another interesting view regarding the future of the oil boom from MoneyNews.com on April 25th:

"Is $120 oil even real? Not if you ask the Saudis, or even Lehman Bros.

"The investment bank’s oil expert said this week that the oil boom is due to bust. Economic growth across the globe will slow just as new refineries kick in, raising supply.

"Recession or not, a U.S. slowdown will slacken demand sharply, right as new oil hits the market. "Supply is outpacing demand growth," said Michael Waldron, Lehman’s oil strategist.

"'Inventories have been building since the beginning of the year. We have pretty significant projects starting soon in Saudi Arabia, and large off-shore fields in Nigeria," he said.

"Lehman is now predicting prices at $83 a barrel in 2009 and as low as $70 in 2010."

[Ed Cone]

Krugman says he wouldn't be surprised to see prices fall due to cost-related conservation, and of course an economic slowdown could contribute to that trend. His larger point -- that demand is driving much of the price increase -- seems unassailable. When the optimistic scenario predicts oil at $83 a barrel, it's an indication that the era of cheap petroleum is over. That's true even if some current supply constraints -- e.g., unrest in Nigeria and Iraq -- ease pressure in coming years. We need some smart alternatives to oil.

[winstongator]

Canadian Study: Oil prices to Double by 2012
OPEC President: $200 Oil Possible

It's ironic that these 'experts' are so quick to call an oil bubble, but none of them had a sniff of the housing bubble. Are people buying oil, no money down, with 100% financing? The per-capita oil consumption of China and India could double and it would still be far less than the US. China's oil consumption could increase 10X and still be less per-person than the US. Our use is going down slightly, but we still drive a lot, and like to buy goods shipped by truck. The US consumes roughly 25% of world oil, so if we really did cut consumption seriously it would help - short term. That slack would eventually get picked up by China and India. Had we started any number of years ago with real mileage standards, we wouldn't be at this point with so little extra supply capacity and demand that is so insensitive to price.