Americans are not the only influence on oil demand, but they're the biggest one. We consume a quarter of the world's annual supply -- three times more than China and eight times more than India. So if our consumption starts falling and keeps falling, the petroleum sector will quickly feel the effects.
The common assumption is that oil use in China and India will soar no matter what. But even on the other side of the planet, demand is inversely related to price. Pump prices have risen in China, and if American motorists are cutting back on travel, you can bet that Chinese drivers are doing the same.
The supply of oil is also related to the amount it sells for. It's not getting easier to find new reserves, but at $130 a barrel, a lot of companies are going to be looking really, really hard. They will also be reevaluating fields that couldn't be profitably tapped at $60 a barrel. The federal Energy Information Administration projects that U.S. production will rise 24 percent in the next decade.
The same factors should boost output abroad. OPEC members will face far more temptation to cheat on their production limits. "This year will be a year in which supply will be put into the market by stealth by OPEC countries and countries we call black-hole countries" such as China, Lehman Brothers energy economist Edward Morse told The New York Times.
Back in the 1970s, everyone thought the world was running out of petroleum. But spurred by huge price increases, production rose even as demand was falling. Before long, the world was awash in cheap oil.
Don't be surprised if it happens again.
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