After surging to a record high of $147 last July, oil prices plunged to $37 near year-end, thanks to the economic slump.
Now they are back above $60, and experts say the rally has only just begun.
The same factors that drove prices up last year could return quickly, Prof. James Hamilton of the University of California, San Diego told Congress this week. He cites slumping global production and explosive Chinese demand.
“If demand from China and elsewhere returns to its previous rate of growth, it will not be too long before the same calculus that produced the oil price spike of 2007-08 will be back to haunt us again," Hamilton told the Congress.
Daniel Yergin, the dean of oil economists, pointed out in his testimony that global demand has now fallen back to 2005 levels.
"Demand shock has completely given way to recession shock," he says. "What had seemed unthinkable to many—declines in global demand—have become reality."
But that can change in a hurry, Yergin explains.
"As the economy picks up, spare capacity will start to erode, and the oil market could tighten again in the first half of the next decade," he says.
"The result could be another adverse shock to the U.S. economy and global energy security."
Legendary oil man T. Boone Pickens agrees. He told Fox News last week, “You're going to be back to $75 oil by the end of the year — and $200 per barrel within five years.”
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