A key observation, buried deep in the article:
"THE time when we could count on cheap oil and even cheaper natural gas is clearly ending." That was the gloomy forecast delivered in February by Dave O'Reilly, the chairman of Chevron Texaco, to hundreds of oilmen gathered for a conference in Houston. The following month, Venezuela's President Hugo Chavez gleefully echoed the sentiment: "The world should forget about cheap oil."
The surge in oil prices, from $10 a barrel in 1998 to above $50 in early 2005, has prompted talk of a new era of sustained higher prices. But whenever a "new era" in oil is hailed, scepticism is in order. After all, this is essentially a cyclical business in which prices habitually yo-yo. Even so, an unusually loud chorus is now joining Messrs O'Reilly and Chavez, pointing to intriguing evidence of a new "price floor" of $30 or perhaps even $40. Confusingly, though, there are also signs that high oil prices may be caused by a speculative bubble that could burst quite suddenly. To see which camp is right, two questions need answering: why did the oil price soar? And what could keep it high?
Supply constraints coincided with a huge boom in oil demand. Global oil consumption last year increased by 3.4% instead of the usual 1-2%. Nearly a third of that growth came from China, where oil consumption rocketed by perhaps 16%. One senior European oil executive claims that, in contrast with the embargoes and supply-driven price rises of the past, "This is the first demand-led oil shock."The print edition of this week's Economist contains a 25-page "survey" on the topic of oil. All of this content is available at their website, but most of it (other than the article I've linked to above, which is free to all) is "premium" (or subscriber-only) content. If you're interested in the topic, but don't subscribe to the magazine and can't find it at a local newsstand, you can buy a PDF of the April 2005 Oil Survey for $4.95.