AS Micro: What´s really behind the oil price rise?

The price of oil continues to rise ($114.61 per barrel) and there a number of reasons put forward why this is so, none perhaps more pertinent than the reason explained in this WSJ article.

We´re all aware of the political turmoil in the oil-rich Middle East and the implications this has on the supply of oil however, “economists believe that oil prices would still be above $100 even if peace broke out in North Africa and the Middle East.” The key factor now behind the upward pressure on oil and therefore petrol and diesel prices is the voracious demand of the so called emerging economies of China, India, Brazil and even Saudi Arabia as can be seen in graph below.

“China guzzled 874,000 more barrels of oil in March than it did a year earlier, a 10.6% increase despite high oil prices. Since 2000, U.S. oil consumption has edged down 4% to 19.2 million barrels a day. In the same period, the combined demand from Brazil, India, China and Saudi Arabia has risen 76% to 18.8 million barrels, nearly matching the U.S. By itself, China has more than doubled oil consumption to 9.4 million barrels.”

The fact that a barrel of oil is so expensive means that household disposable incomes are feeling the pinch and this has profound macroeconomic implications: “rising gasoline prices have sapped consumer confidence and altered spending patterns. They are slowing U.S. gross domestic product growth from an already sluggish level” and the rate at which the BRIC nations are growing and the ambitions they harbour, it´s unlikely their appetities for the black stuff will be satiated some time soon.