The Oil Paradox

A worldwide slowdown won’t end the oil price boom anytime soon.

Last week brought fresh evidence that the U.S. economy is slowing and may have slipped into recession. The news has not only dimmed expectations for world economic growth, but it has also hammered oil prices, which lost $15 from the $100 high just a month earlier. A year ago, more bullish thoughts lifted oil prices from the $50 level in January 2007. The question on policymakers’ lips is whether a worldwide slowdown will bring an end to the boom in demand for oil and drive prices significantly lower. Although oil prices will eventually drop as new sources come online and biofuels and other alternatives take hold, crude price are likely to remain high and volatile for a while.


One reason is that today’s oil market is precariously balanced between supply and demand. That’s why small wiggles in expectations about how much oil the world economy will need, and how much supply is on hand, cause huge changes in price. Such gyrations explain why companies that are big oil users