Roller coaster ahead for oil prices

There are only two factors driving up oil prices: supply and demand. Supply is restricted as oil becomes harder to find, and demand is growing due to the rise of China, which is now one of the world’s largest users of oil.

Analysts are predicting that global demand for oil could exceed supply by as soon as 2015. However, the situation is not quite as simple as the newspapers make out. First, the world isn’t running out of oil; it’s running out of cheap oil. Canada alone has an estimated 180 billion barrels of recoverable oil, enough to meet global demand for the next century or so.


The problem is, you can’t run your car off oil in the ground. The global oil shortage is a refining problem, not a lack of resources. As oil becomes harder to extract, it becomes more expensive. As oil becomes more expensive, major oil users will look elsewhere for energy, or simply reduce their energy use. Oil will remain a major global energy source for the foreseeable future, but only where there is no economic alternative.

Much of the oil currently used in China is squandered; Chinese industries are often crude and inefficient, and much of the energy from the fuel simply goes up the chimney. These wasteful habits will drop away as oil prices rise.

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