Oil prices will spike again soon

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) May 25, 2011 -- Persistent global demand, tepid supply growth and easy money are going to trigger the next damaging spike in energy prices –including Unleaded Gasoline (XRB).

As the turmoil in the Middle East spreads to Libya, a major oil producer, the shockwaves of Arab unrest are reverberating through the global oil supply chain – and threatening to spill over into the global economy.

The snail-like pace of global oil supply expansion (projected at around 1% annually) cannot keep a petroleum-addicted world economy rolling without prices rising, perhaps sharply.

The fundamental story of increased oil scarcity is unchanged, and our commodity strategists in New York now see distinct upside risks to the current forecast of Brent crude oil. The impact of scarcer oil and higher oil prices on economic activity remains at the top of our list of worries.

What makes higher oil prices almost inevitable is the depth of the jobs deficit in the United States. Unemployment is officially 9% but is more like 13% if you consider the low rate of labor force participation, the number has fallen this year to levels not seen since 1985.

High joblessness and weak inflation will keep the fed funds rate near zero at least through next year and perhaps longer. That should help keep pushing unemployment slowly toward its long-run average of around 6% -- but at the expense of further dollar depreciation, stronger global demand and, ultimately, higher oil prices.

The only way to bring both the labor market and the oil market into equilibrium is likely to be through a further increase in the real oil price. This would presumably increase oil supply by making exploration and production more attractive, and reduce oil demand by increasing energy efficiency.

Brent crude oil     energy     inflation     Libya     oil     unemployment     united states     Unleaded Gasoline