Oil on the Rise

Oil prices hit an eight month high today reaching over $73 a barrel. This raise was in part due to the forecast for the increased global demand. Oil prices have risen 60% this year but still remain far from the $150 range it almost hit last year. The International Energy Agency (IEA) has warned that rallying prices had been driven by optimism of a global financial recovery and not on supply and demand fundamentals.

The price of oil will teeter for the following months, but no one can argue that oil prices have a direct correlation with the global economy. When times are bad, oil prices fall; when times are good, oil prices increase. This is simple supply and demand; oil prices will increase whenever the global economy recovers from this slump. Demand for oil is dependent on production; currently industries such as manufacturing and construction are facing difficult times and do not need as much oil to run their factories and meet production requirements.

Another argument that is often voiced when the topic of oil price is brought to attention is whether or not oil prices will increase because it is a rare and valuable resources and the world will one day run out, or if the world has the ability to produce alternative energy fast enough so it is no longer dependent on oil. We live in a society where problems are fixed only when they arise and because of this, high oil prices will be hard to prevent. When oil prices are high enough that United States and other key economies are sick of paying high oil prices, then only will we adapt and start accepting other fuel alternatives.