The recent economic turbulence around the world has slowed oil price increases, and this is expected to continue into 2012. However, in the long term, as the global economy recovers, oil demand is likely to grow faster than supply. According to a special feature in the November 2011 issue of the McKinsey Quarterly, at the rate things are going, an oil shock, characterized by high, volatile prices, is quite possible in the years ahead. Business leaders need to take this very seriously.
The fact is that current incentives to cut energy consumption and the move toward greener energy sources will not be enough to slow the growth of global demand for energy. On the supply side, the increase in output is not expected to be enough to meet demand because of the technological challenges and massive investments required to exploit new energy sources. Since supply will barely meet demand, expect to see oil prices climb sharply down the road, which will have a major impact on the world economy.
The price hikes will likely affect economic growth by sapping consumption and international trade and encouraging consumers and industry to implement measures or change their energy consumption habits. As such, McKinsey forecasts that supply and demand will again become balanced but not before 2020 because of the time it will take to make these adjustments and the lag between their implementation and their real impact on oil demand.
(more…)
