Monday, August 09, 2004

BW Online | August 9, 2004 | Oil Prices Could Get Even Worse

Business Week speculates that we could see $50 a barrel oil sooner than we expect.

Why? Demand increases as well as production limits brought about not so much by OPEC but by not having excess capacity in the production of more oil. This lack of capacity is in part driven by lack of investment in the past, in part due to political turmoil, and partially because of OPEC's production limits. With this little excess, any small problem would quickly be magnified and it would lead to higher oil prices.

What would higher oil prices do? For starters, higher prices would slow the economy. For instance, the BBC reports current prices could already be "[shaving] as much as half a percentage point off global growth."

Longer term however, higher prices would also encourage the market-driven development of alternative energy sources. It is for this reason that some in OPEC are beginning to worry.

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