Does not a doubling of oil prices need a fitting response?

If the price of beans doubles, most shoppers at the local vegetable market will have no hesitation to switch to the cheaper green vegetable and will tell the vendor so in no uncertain terms. If the price of staples such as potato or onion doubles, they may be as unequivocal; nevertheless they will buy smaller quantities.

Vegetable market economics do not seem to apply that easily to crude oil.
Over the past year the price of crude oil in the international market has doubled. This should have evoked either of two responses. One, consumers would have tried their best to reduce consumption or two, producers would have stepped up their production to cash in on rising prices. In this rapid run up in crude prices, neither has occurred in any significant sense. Petroleum products are demonstrating their price inelasticity.

True, consumers have protested round the world; some car owners in the US have taken to public transport to save on petrol, and airlines are even cutting down on the food and water they serve on board to lighten their planes and, consequently, their fuel burn.

Yet oil consumption in the US, which accounts for a fourth of the world’s use, is still rising, not falling. In the four weeks ended May 2, consumption rose 0.1 per cent over the previous year. World oil demand this year is expected to rise to an average of over 87 million barrels a day from 86 million a day in 2007.

True, global oil majors are on a desperate hunt for new oil and gas resources in very many parts of the earth, from the Arctic permafrost and the desolate Sakhalin islands to the depths of the Krishna Godavari basin offshore. Existing wells are being coaxed into delivering more, but many of them have left their productive years behind. The result is that the market is barely getting what it needs for now.

The Hindu Business Line