With the price of oil moving up so sharply, the demand should go down. Those dynamics are immutable.
The International Energy Agency, the big think tank in the industry, says demand will keep going up because of the expanding need for crude in Asia, Latin America, and the Middle East. According to The New York Times, "By 2013, oil demand in developing countries will account for nearly 49 percent of total global demand, the report said, compared with 36 percent as recently as 1996. "
That puts the US, Japan, and Europe in Hades for the foreseeable future. Even if these regions use less fuel, prices will continue to rise.
The information from the agency drives home the point that the most critical dynamics of rising oil prices will not change. Countries like China will continue to underwrite the price of gas and diesel to keep their economies moving. They cannot afford to see the transportation of manufactured goods and commodities dented. Even though the central government has raised the price of fuel, it still writes most of the check for a tank of petrol.
Perhaps worse, the rising price of crude lets oil-rich countries keep more of the stuff at home. Saudi Arabia could cut oil exports by half and still bring in the total number of dollars it did a year ago. The kingdom and its neighbors, along with Venezuela, Brazil, and Mexico, are using more and more oil to power vehicles for their citizens. Additional oil is also needed in these countries as they build their own infrastructures.
Oil prices may make modest moves up and down, but the trend is ugly and the solutions few.
Douglas A. McIntyre
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