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The Green Life: Oil Prices Going, Going... Up?

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November 07, 2008

Oil Prices Going, Going... Up?

IStock_000004333501XSmall Oil prices will rebound to more than $100 per barrel as soon as the economy recovers, some time between now and 2015. That's the forecast in an International Energy Agency report set to be published next week, according to the Financial Times. By 2030, the IEA expects oil prices to exceed $200 per barrel as a result of rising demand and steeper-than-expected declines in oilfield output. “While market imbalances could temporarily cause prices to fall back," writes the IEA's World Energy Outlook team, "it is becoming increasingly apparent that the era of cheap oil is over."

The projection is based on the idea that world oil demand will grow to "unsustainable" levels at a time when the IEA anticipates oil production will drop by more than 8 percent. But what the agency and the Financial Times both fail to explore is how changes in the transportation sector, which guzzles 70 percent of all petroleum in the U.S., could make all this oil price mumbo-jumbo moot. By 2030, alternative fuel vehicles, like plug-in hybrid, electric, natural gas, and fuel cell cars may rule the road. The American Solar Energy Society projects that plug-in hybrid vehicles alone will account for 50 percent of the U.S. vehicle fleet by 2050. If that happens, the price of oil could be $1,000 per barrel, and it would hardly affect household expenses. But using the IEA's logic, a world in which few cars rely on gasoline would see such softening demand for oil that prices would drop.

--Michael Fox

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