A shift in forces pushing oil prices higher

It’s elementary economics: Price is driven by supply and demand. Changes in either one can push the price of a commodity up or down.

But there can be big differences in the result, depending on which one – supply or demand – is doing the pushing.

Case in point: crude oil.

Supply was the culprit when oil prices soared in the early 1970s. Arab oil-producing states sharply cut back their production of crude, initially to punish the West for supporting Israel.

The result was a shock to the global economy, including an upsurge in inflation and several nasty recessions.

Cut to the current decade. Crude prices more than doubled during 2004 and 2005, nearing $70 a barrel. But this time, analysts fingered demand as the principal driver.

Philadelphia Inquirer