Are sky-high oil prices ahead?

…Are we destined to experienced another, prolonged period of $100 oil, or even worse? Here are two competing arguments.

Veteran oil analyst Matt Simmons says we are. Simmons, founder of Simmons & Co., argues oil’s price plunge from record-highs last year to below $50 took many oil fields out of production. The low oil price forced many oil companies to delay projects, decrease the number of rigs deployed, consolidate operations/lay-off staff, and above all, to abandon expensive projects. That deceased production, plus aging oil fields and the credit crunch’s impact on oil exploration, help set the stage for the current price rise. What’s more the price rise will continue, Simmons argues, because producers will not be able to increase global oil supply fast enough to keep up with soon-to-be rising global oil demand. Simmons believes the average daily price of oil in 2010 will be $200 per barrel (in 2005 dollars).

Bloomberg Columnist William Pesek says visions of $200 or $250 per barrel oil represent a stretch, at best. Much of that rise in oil’s price, Pesek says, hinges on China’s ability to drive global growth. However, a considerable portion of that China-based demand is for raw materials, and will not lead to large, spin-off growth effects for economies in Asia, or globally. In other words, China’s economy is not going to create demand for parts and other goods assembled outside China, and once investors realize China’s still-export-oriented economy can not grow more than 6 percent per year, the commodity bubble or “bubble of belief” will burst, and so will oil’s price. The key point in Pesek’s thesis is a frugal consumer era, led by reduced consumption in the United States