If, in fact, China's GDP growth is increasing, and the Asian economic recovery follows suit, large demand will once again be placed on oil production.

Countdown to the next oil shock?

During the last global economic expansion, global oil demand increased at a rate faster than global supply increased, which reduced the "safety cushion," -- the gap between production and consumption -- and that was one reason oil hit a truly dizzying high of $147.27 per barrel in the summer of 2008. (Leverage-fed institutional investors piling into oil as an asset play also helped boost oil's price then.)

Further, the prospect of resumed, large increases in demand -- particularly in emerging markets -- is one reason oil's price did not collapse during the current recession. Prices did plunge to $35-40 per barrel last winter, but moved no lower, largely on sentiment that, long-term, the oil market favors the bulls. Moreover, the price remained above $30 despite the fact that inventories are flush and the world is awash in oil.

Now, with the U.S. and global recoveries in sight, oil's safety cushion could be pressured again, at a time when oil is already at a lofty price, trading around $70 per barrel. If the major consumers of oil -- the United States, China, India, and Europe, as well as other large users in emerging markets -- do not do more to increase fuel efficiency and improve overall oil conservation, "oil will easily revisit $100 per barrel by 2011," so says economist Peter Dawson, adding that there are global GDP growth scenarios that have oil rising much higher than that.

In other words, given the large toll that high oil prices take on the U.S. economy, the United States can not move fast enough to increase vehicle miles per gallon and toward commercial and residential systems that use less oil.



Financial Editor Joseph Lazzaro is based in New York.