Oil's rise may point to big increases in 2011 and 2012
Oil prices rose more than 3% Wednesday to close at their highest level since Nov. 11, driven by unexpectedly strong private sector job gains in the U.S. and a seven-month high in Chinese factory activity.
Crude oil futures for January delivery ended the trading day up $2.64 to $86.75 a barrel on the New York Mercantile Exchange. But while positive economic news here and abroad was the catalyst for the day's rise in oil, U.S. consumers aren't likely to appreciate the potential long-term effect on commodities prices, particularly if several long-term forecasts turn out to be accurate.
Goldman Sachs, for example, has reiterated its view that U.S. crude prices are likely to average $110 a barrel by 2012, rising from $100 next year. That would lead to sharply higher retail gasoline prices.
It won't necessarily matter if energy demand continues to lag in the U.S., experts said, because the impetus for higher oil prices is likely to come from China. The world’s fastest-growing oil consumer will use 9.6 million barrels a day in 2011, up by more than 4% this year, according to the recent report by the International Energy Agency in Paris.
Fatih Birol, the IEA's chief economist, said at a recent conference in Budapest, Hungary, that higher oil prices are inevitable. "The age of cheap oil is over,” Birol said.
The IEA's most recent energy outlook presentation, by Executive Director Nobuo Tanaka, can be found here.
--Ronald D. White