Demand, and high oil prices, are here to stay

The biggest news last week may be what didn’t happen. Crude oil futures didn’t hit $100 a barrel.

I expected traders to push the price past the century mark before Thanksgiving. Instead, oil closed Friday at a record $98.18, and we now enter another week of speculation.

Hundred-dollar oil is one of those psychological thresholds in the market that we note with fanfare. But $100 a barrel isn’t significantly different from the mid-$90s we’ve faced for several weeks. It’s not the price that matters so much as the trend.
Just a few weeks ago, we wrote stories about $90 oil. A couple of months before that, it was $80. So far this year, oil prices have almost doubled. Pick your marker. They all bear the same message: The oil market is changing.

Oil economists and geologists debate whether world oil supplies have peaked. In the markets, though, the debate is over.

Oil will hit $100 for the same reason it hit $90. We market watchers can twitter about inventories, warm winters and the role of trading, but the rising price of oil is driven, ultimately, by the most basic concept in economics: Demand is rising faster than the supply.

Emerging countries such as China and India, countries with huge populations, have developed a thirst for oil because oil powers growth.

In the past decade or so, China has developed a true middle class, one that comprises about 350 million people. They crave a lifestyle we in the West take for granted, and there are another 1.2 billion of them still striving to achieve that middle-class status.

If they all succeed, the natural resources needed to meet their energy demands “would take four planets,” BP chief executive Tony Hayward told the Houston Forum recently.

Houston Chronicle