Are oil prices headed up?

Date posted: December 28, 2010

Oil prices and their derivative gas prices have not behaved according to their typical pattern this year. They didn’t rise this summer, as is usual, but now when driving generally falls off, prices are edging up. What’s going on? N.C. State University economist Mike Walden explains.

“Well, of course always in economics … we look at supply and demand, and … we didn’t see the jump in oil prices this summer primarily because driving hasn’t returned to prerecessionary levels. And supplies are actually pretty good. There have been some new finds of oil, so there is plenty of supply out there.

“Now, what many are saying is, ‘Well, with the economy not roaring back but at least coming back, driving is probably going to go back up and probably demand will rise faster than supply.’ And so that’s why some analysts are thinking, well, it is just around the corner before we see $100-a-barrel oil.

“Now there are others who say, ‘No, no, no, no — too soon.’ They say, ‘Look, yes, demand is coming back, but it is coming back at an agonizingly slow pace.’ They look at China and say, ‘China is actually trying to slow down their rate of economic growth, and the world right now is awash in oil.’ So the contrary position is, no, gas and oil prices aren’t headed up. They are certainly going to bounce around, but they say, ‘Don’t look for triple digit oil prices anytime soon.’

“So obviously a clash of viewpoints. Time will tell who is right.”

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