Among the many variables business executives, policy makers, and economists are watching as the United States attempts to jump-start its slow growth / no growth economy, is the ability of oil's price to moderate in the quarters ahead.

Further, oil's failure, to date, to fall below $110 per barrel despite three straight months of declining U.S. gasoline consumption and sluggish economic growth has caused oil watchers to re-examine their premises regarding projected oil prices for 2008-2012.

The oil market, circa May 2008

Over the past decade, the world has encountered both a tripling of oil prices and the start of the $100 per barrel oil era, driven largely by increasing demand for oil in emerging markets, particularly in the giga-GDP growth nations of China and India. Further, one 'dampening assumption' during oil's recent climb to record heights has been that the price of oil would fall as the U.S. economy approached a recession, and as global growth slowed.


However, to date that price drop has been modest: after hitting a record high of $119.90 on April 22, 2008, oil fell just 10% to about $110 this week, amid a slew of economic data, including a 0.6% Q1 2008 GDP growth rate which confirmed that the U.S economy is barely growing. What's more, oil quickly rebound from that low at the first sign of benign U.S. economic data. On Friday April 22, 2008 oil rose $3.38 to $115.90 per barrel after the markets learned that U.S. payrolls decreased by only 20,000 in April 2008 - - well below the Bloomberg News survey consensus estimate of a 75,000 job loss.

For economist Glen Langan, Friday's $3 oil price jump is yet another datapoint on the consequences of large, annual global oil demand increases. "We're really in the U.S. slowdown period, but if the price of oil doesn't moderate in the month's ahead that would present an unpleasant scenario regarding oil," Langan said. "First, we learn from OPEC that their supply increases can't lower the price of oil, or so they claim. Now, if the price holds during the U.S.'s slump, we'll learn that slowing U.S. demand can't lower it either. If both are true we know which way oil's headed, up."

Higher, from here?

Up from $115 per barrel. Not the rosiest outlook, to be sure, for an oil-dependent world. Still, Langan was quick to point out that in addition to the above factors, others variables can influence both supply [new oil & oil equivalent finds, better extraction techniques] and demand [increased efficiency, behavior/lifestyle changes, discovery/introduction of substitutes]. And Langan also carefully noted that "at some point the market's price mechanism will act to damper global demand, at some point oil just becomes too expensive, and people and companies cut back consumption."

Still, the important point, Langan said, at this very young stage of globalization is that it appears oil, despite a decade-long rise from $23 per barrel oil in 2000 to $115 today, despite an average U.S. gasoline price of $3.60 per gallon, is headed higher, still.