This Time Around, Higher Oil Could Be Here to Stay

Crude oil futures topped $108 per barrel on Monday, amid continued conflict in Yemen and Libya. Though oil inventories in the United States have actually increased significantly in recent months, prices have continued to rise in anticipation of new demand stemming from a potential economic recovery, and the danger of lasting unrest in the Middle East.

“The more one looks at uprisings in the Middle East, the more one realizes they will not be easy to resolve,” said commodities trader Christopher Bellew to Bloomberg. “At the same time, oil demand is relatively inelastic to higher prices.”

In recent weeks, there has been a growing sense that this latest oil price spike may not be as temporary or “speculative” as once thought. Rising demand from China—which the country’s biggest producer, PetroChina, now says will grow 14% by 2015—is considered among the most significant factors driving the bullish longterm outlook.

A senior Department of Energy confirmed this view in an interview with Platts Energy this week, indicating an opinion on the part of the administration that this time, higher oil prices are here to stay. “What’s different is that if you look at the growth of other economies, like China and India…I think the demand for oil is going to go up, and that [oil] prices in the future will likely on average go up” said acting Undersecretary of Energy, Arun Majumdar.

Too Little, Too Late?

Despite a pledge from President Obama last week to reduce oil imports by one-third in the next decade, there is probably little that can be done in the near-term to shield Americans from the shock of rising oil prices that many worry could stifle a recovering economy. Though the United States figures to play less of a role in creating new demand thanks to rising fuel economy standards and newly announced efforts to encourage domestic drilling, overarching trends in the global market make it unlikely that gas prices will return to lows seen in the past few years.

Seasonal consumption of gas in the U.S. has actually fallen slightly from last year, and even further declines wouldn’t do much to reverse the upward momentum of global demand—or the price hikes that will accompany it.

In order to minimize the financial fallout from a prolonged uptick in gas prices, consumers will have to act on their own behalves by seeking out more efficient vehicles. Some already are, but as gas prices continue to edge toward the $4 mark—with the summer driving season still months away—the potential for a massive rush to hybrids and high-MPG gas cars grows.

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  • MrEnergyCzar

    Cheap oil has peaked and things are changing. I’ve been preparing my family for this peak for several years and attached a video to help and show people what they can do….


  • JamesDavis

    And still there is no electric cars being mass produced in America so Americans can get away from fossil fuels and never look back. Are all Americans so stupid that we can’t see the big picture on our fossil fuel junkie government?

    The Republicans, the ones who started this mess by unjustifiably attacking oil countries in the middle east, may shut the federal government down in a couple of days with their squabbles over the budget. When they shut down the federal government, why don’t they also shut down all the American automakers, retool them and start them back up in building only electric vehicles? After all, we tax payers gave our automakers close to a trillion dollars and we still have not received anything in return. The least American automakers can do is start mass producing electric vehicles…unless they want to plunge us into another deep recession or depression.

    If we can shut down all the American automakers during WWII and not build any private vehicles for three years, we can do it today and the American people can force the automakers to start mass producing electrical vehicles and get us completely away from fossil fuel.

  • Janni

    Another way of doing it is to start taxing car fuel let’s say by increasing the tax by 2 cents ever month until the gas price in at European level at about $9 a gallon. That will lower the consumption.

    Use that tax money to subsidise plugin car and mass transit…

    Also lower the speed limit to max 55 like you did after the oil embargo in 1973. This will save even more fuel.

  • BillyG

    How about an electric car that actually makes sense as for daily transportation? I had the opportunity to sit in a Nissan Leaf at the Denver auto show last weekend and had to look at the badging to make sure it wasn’t a Lexus! No wonder it’s so expensive. Why can’t the car manufactures just give us basic transportation? Oh, how I miss my old Corollas!

  • Anonymous

    Diesel prices hit $4/gallon while gasoline hits $3.7/gallon. Very fast increase

  • indigo

    I’d love to see a special $2,000/year Guzzler Tax for any vehicle that gets less than 20 MPG. It would get these pigs off the road and thus reduce fuel demand and thus reduce fuel costs.

  • DucMan

    Easier to simply increase the gas tax so that it hits everybody. $5 gas would make a workd of difference to people adopting hybrids and EVs. It could also be phased in to give people time to prepare and make the transition.

  • ProtentialCarBuyer

    I am all for hybrids like the ford fusion and escape hybrid but the cost needs to come down some before i consider one. thinking about trading in a 09 accord for a hybrid before dealers start jacking up prices.

  • Indigo

    I got my Insight-II brand-new for $17k. If you can deal with a smaller vehicle, a hybrid can be had without breaking the bank. Kipplinger put the Insight-II on the top ten list for cheapest cars to own over a five year period.

  • ProtentialCarBuyer

    I am looking at the Insight as well but I heard their was problems with honda’s IMA system in the long term. I am planning to keep this car pass 200k miles

  • Anonymous

    I’m a regular reader of Consumer Reports. I have not read that CR mentioned Insight’s IMA system has any major problem.

  • JasonT

    Crude oil has nowhere to go but up. Not only has the easy to extract oil coming to and end but you have Bernanke devaluing the dollar at the same time. Since oil is priced in dollar you can catch my drift. There is too much upside pressure for oil. I think in the next few years we may be looking at $200 Oil.


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  • tapra1

    higher oil prices are here to stay. “What’s different is that if you look at the growth of other economies, like China and India…I think the demand for oil is going to go up, and that [oil] prices in the future will likely on average go up.Surface News