OK - this post is now getting old but still crucial so I will still include it here. The post was initiated by an
article revising the annual price of a barrel of oil to $101 (see the link for the
WSJ article):
Federal energy officials expect oil to average $101 a barrel
this year, a sharp upward revision from its earlier forecast that suggests
prices will remain above $100 for some time.
But the
U.S. Energy Information Administration expects American drivers, truckers and
airlines to use less fuel this year as the economy softens. That could
take some pressure off prices for gasoline and other fuels, and could keep the
price of gasoline under a U.S.
average of $4 a gallon. ...
... the move by the agency -- usually a price bear
that had predicted $87-a-barrel oil in January -- suggests $100 oil could be
the new norm this year. The arm of the
U.S. Energy Department also doesn't anticipate much relief next year, when it
sees prices averaging $92.50 a barrel. 
Notice the cyclical relationship between Oil Demand and Real GDP (economic growth).
A number of factors continue to push oil prices upward, with little
relief seen until later this year. Oil demand continues to grow briskly in China, India
and Russia,
where fuel prices are heavily subsidized. In the Middle East, soaring energy
needs and shortfalls in natural-gas supplies mean major exporters such as Saudi Arabia and the United Arab Emirates must use more
oil at home. The EIA predicts that even with falling consumption in the U.S., oil
demand world-wide will jump by 1.2 million barrels a day this year.
THEN, I wish to add a short prescient piece that Paul Krugman found - (from Paul's blog, I think that I will still recommend using Mankiw's textbook, though I do like Krugman's book - the thing WEIGHS a TON! - and I thought the Mankiw text was huge! ... I can't really complain that some of them do not bring the textbook, but one HAS to have the book!!):
I was searching for other stuff and ran across a 2004 Marc Faber piece that seems remarkably prescient. It contains one extremely interesting calculation:
Remember also, that if China’s per capita oil
consumption went to the level of Mexico’s per capita consumption China
would consume 24 million barrels of oil daily, which would be close to
30% of global production. And since it is most unlikely that current
total global oil production of 80 million barrels per day can be
increased much - in fact, it may begin to decline because no major oil
field has been discovered since 1965 - I expect that prices will
increase further in future - possibly far more than anyone is now
expecting.
I just hope that Faber was wrong about this:
And, in the case that oil prices were to rise in real
terms to their 1980s highs - well over US$ 100 - then the foundation
for World War Three would be laid …
I felt I must include Krugman's whole post for interest.
From the original article above, the supply (capacity) issue:
The oil market is all the more jittery because of so little
spare capacity to tap in a crisis. The 13-member Organization of Petroleum
Exporting Countries now has just over two million barrels a day in excess
production capacity, almost all of it in Saudi Arabia. The world is
consuming about 86 million barrels a day, with OPEC supplying more than a
third.
Oil traders also point with alarm at signs of slumping output
from non-OPEC countries such as Russia,
Norway, Mexico and the United Kingdom. OPEC has resisted
increasing output this year in the face of record prices and pressure from
consuming states, arguing that fresh supplies from non-OPEC producers will
cover most of the world's increased needs.
So lots of issues, as always, that complicates a straightforward economic analysis! And then there is Brazil!
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