Oh Noes! McKinsey Global Institute is predicting that “Liquids demand tightness could return between 2010 and 2013” (pdf link, registration required). For those who need a translation, that’s econo-geek-speak for “Cheap oil will not last.”
As anyone who’s visited a filling station recently knows, gas is a heck of a lot cheaper now than it was last summer. But when the economy tanked last fall, demand for oil plummeted—and when demand fell, prices fell too.
But McKinsey Global predicts that, as the global economy recovers, demand for oil will pick up again. And when demand increases, oil will get more expensive—perhaps the way it did during 2008, when prices shot through the roof.
I think the message from McKinsey here is clear: don’t think of cheap oil as the new normal. Instead, volatility—and the potential for sharp, disruptive upward price spikes—could be with us for quite a while.
