Crude oil rose on an unexpected drop in U.S. stockpiles and concern that supply from the Middle East may be disrupted. Oil for December delivery gained as much as 0.7 percent to $91.10 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since trading began in 1983. The contract was recently at $90.95.
The idea that oil production is going to surge in response to rising prices is getting a little tattered at this point.
You can see the most recent prices for oil in different markets. The higher priced oil in that table is lighter and easier to refine.
The Venezuelan and Algerian energy ministers defended the current oil output by OPEC members on Thursday and suggested there is no need for another production hike to help ease runaway prices.
Algeria and Venezuela don't have any idle oil production capacity. So they couldn't respond to rising demand even if they wanted to.
The Wall Street Journal reports that we should not expect additional oil supplies from OPEC.
Oil prices are hovering near historic highs, but consuming nations shouldn't expect quick relief from OPEC, the world's only source for big, quick supplies.
For several reasons, the Organization of Petroleum Exporting Countries has neither the clear leverage nor the inclination to open the spigots and drive down the price of crude, which jumped past $90 a barrel in intraday trading in New York last week for the first time.
They lack the capacity to increase production. Plus, they are making far more money and don't need to produce more oil.
Asian demand for oil is on track to hit 25 million barrels a day this year, an increase of 2.5% from last year, according to the International Energy Agency in Paris. World demand is set to rise a more modest 1.5% and may even decline in Europe. (The U.S. -- which is on pace to consume 20.9 million barrels a day this year, up less than 1% from last year -- remains the world's single largest consumer.)
Chinese demand is squeezing us. We will use less oil as Chinese demand drives oil prices up so far that demand destruction causes a drop in US demand.
Crude-oil demand growth in China has cooled some, too, but not dramatically. In the past three years, crude-oil demand grew an average of about 9% a year, according to the IEA. This year, the IEA says China's oil demand is on target to grow 6% to about 7.6 million barrels of oil a day, followed by similar growth next year. But China's economy continues to grow faster than expected. GDP growth is now estimated to be on track to surpass 11% this year.
That economic growth rate means China increasingly competes with the United States for raw materials and agricultural products. Will China's net effect on the world economy become inflationary?
At this point our continued economic growth depends on our ability to produce more goods and services per unit of energy. Also, we need better technologies for using non-oil energy forms, primarily electricity. We face a liquid fuels shortage, not a general energy shortage. The high price of oil makes electricity a much more attractive form of energy. We can generate as much electricity as we need from nuclear power and cheap solar will come eventually.
|Share |||By Randall Parker at 2007 October 25 10:10 PM Economics Energy|