What does $80-per-barrel oil say to you?
Three years ago, it would have told you that global oil markets were at record tightness. Back then, the U.S. president was making a personal pilgrimage to Saudi Arabia to vainly plead for more production. And economists were worrying about the implications for global economic growth.
Today, it seems the goalposts have suddenly moved. After filling up on $4-per-gallon gasoline only two Memorial Day weekends ago, today's $2.20-per-gallon average gasoline price doesn't seem so expensive to American motorists anymore.
And suddenly, $80-per-barrel oil is no longer seen by the Saudis as threatening global oil demand, but is instead viewed as a minimum price for their nation to invest in new supply. And as far as my fellow economists are concerned, we've heard not even a peep from them about what these types of oil prices may mean for the global economy in the days ahead.
But how much longer can the world pretend that it won't soon be facing another energy shock, one every bit as challenging as the one it faced two years ago?
Does anyone still believe the reassuring forecasts from discredited feel-good organizations like the International Energy Agency about new sources of cheap supply, like those that once flowed from places like Prudhoe Bay in Alaska or the North Sea? If so, where is that supply of new affordable oil coming from? Surely not from tar sands or from ultra-deep water fields six miles below the ocean's floor.
And what will suddenly put the brakes on world demand over the next year that will pull oil prices back from the precipice of triple-digit range? Are car sales about to tank in China and India over the coming months, suddenly halting the otherwise insatiable demand from these countries for more oil? Will OPEC suddenly start charging its drivers and its utilities world oil prices and halt the explosive demand growth in their own economies for the very oil they are supposed to supply to the rest of the world?
Whether we are talking about supply or demand, there is nothing on the horizon to prevent the imminent return of the very same oil prices that put us into the deepest postwar recession yet in the first place.
By the fourth quarter of this year, oil prices will be back in triple-digit range, and by next year oil prices will rise to record highs, taking out the high-water mark of $147 per barrel set back before the recession began in 2008.
We're barely out of the recession, and already we face prices that, just a few years ago, our government, our oil industry and our economists told us we would never see.
Where do you think oil prices will be trading in the future?