Just in Case You Were Wondering Why the Price of Oil Keeps Going Up

Just in case you were wondering why the price of oil keeps going up - certainly one of the reasons is the growing demand for oil in Asia. Admittedly, the price of oil is also increasing because of the drop in the value of the dollar, but increasing demand is a major factor. As an aside, I continue to be amazed at the growth of the Asian economies. From the WSJ:

Galloping growth in Asia, led by China, was one of the key reasons global oil prices started shooting up in 2004. . . . .

Since then, governments in the region have initiated projects to cut back on oil consumption. . . . .

But many of the efforts have been thwarted by faster-than-expected growth and by the reluctance of governments to take unpopular steps to push up the cost of using fuel and rein in demand. Moreover, much of Asia's oil demand is driven by transportation needs, making it difficult to alleviate with alternatives such as coal or nuclear power.

Asian demand for oil is on track to hit 25 million barrels a day this year, an increase of 2.5% from last year, according to the International Energy Agency in Paris. World demand is set to rise a more modest 1.5% and may even decline in Europe. (The U.S. -- which is on pace to consume 20.9 million barrels a day this year, up less than 1% from last year -- remains the world's single largest consumer.)

Several countries, including China and India, continue to subsidize consumer fuel costs and in some cases have cut gas-station prices this year as oil prices have surged. Such moves help shield everyday users from the swings of global oil markets but also discourage them from cutting back when global prices rise.

The recent decline in the value of the U.S. dollar -- and parallel rise in the value of some Asian currencies -- has also given Asian consumers more power to spend liberally on fuels, because oil is typically priced in dollars and therefore cheaper to buy. . . . .

. . . . Asian governments are also becoming more ambivalent about crop-based alternative fuels such as ethanol and biodiesel, which are made with agricultural commodities, including corn and palm oil. Prices for such crops have soared in recent years, and many governments no longer want to promote fuels that use agricultural commodities because they fear it will cause broader food-price inflation and harm low-income consumers.

Officials in China and elsewhere remain keenly aware of the dangers that high oil prices pose to their economies. Asia must burn more fuel to generate economic growth than the West, primarily because it is more reliant on energy-intensive industries like heavy manufacturing than other parts of the world.

But Asia held up well when oil prices first jumped in 2004, and many Asian governments, including China, have huge cash reserves on hand to bail out their economies if oil prices keep climbing. The Asian Development Bank recently raised its estimates for 2007 growth in Asia excluding Japan to 8.3% from 7.6% in an earlier forecast.