A new report from a Goldman Sachs economist is predicting that oil prices could rise to over $100 a barrel. (Recent oil prices have hovered in the mid-$50’s.) Needless to say, doubling to cost of petroleum would have serious economic repercussions.

And according to the New York Times, the International Energy Agency (which is predicting rising demand next year) will shortly warn countries to implement emergency oil saving policies if global supply drops even a little.

Yikes. Today’s headlines sound like an oil-induced doomsday is just around the corner. But is it really?

  • The truth is, no one really knows for sure what will happen to the price, supply, and demand of oil in the near future. So many countervailing forces are at work—hedge funds, security premiums, climate change policies, booming Asian economies, geopolitical disruption—that I, for one, wouldn’t even hazard a guess.

    In the long-term, however, it’s a pretty safe bet that global supplies of petroleum will dwindle. In fact, they may shrink particularly quickly as places like India and China clamor for more energy to fuel their burgeoning development. The logical consequence of rising demand and falling supply is, of course, higher prices.

    So I think it’s safe to assume that prices will go up. But when? And how? I’ll leave those questions to the experts.

    Still, as prices rise, energy efficiency will become increasingly critical to economic well-being. As I pointed out in an earlier post on the subject, North America has made great strides in this arena. But compared to our economic peers, we’re still laggards. Below, is a chart I cooked up to depict the imbalance (the lower the bar, the less the country depends on energy to produce wealth). The data is from the US Department of Energy and refers to the period from 2000 to 2002.