U.S. demand for energy-coupled with growing Chinese demand and the realities of peaking worldwide production-should continue to drive up oil prices for at least the next few years. U.S. oil demand has increased an average 1.7% per year during the past decade while gross domestic product has increased 3% per year, Lehman Brothers managing director and chief energy economist Edward Morse said at the Deloitte oil and gas conference in Houston last month. If this trend continues, U.S. daily demand will grow by 300,000 barrels in 2007. Meanwhile, daily worldwide oil consumption has increased from 21.8 billion barrels in 1981 to 31 billion in 2005. The U.S. consumes about 15 million barrels a day, or half of world supply. China is adding the equivalent of a city the size of Houston to its urban infrastructure every year, and will likely consume an additional 500,000 to 700,000 barrels per day in 2007, Morse added. China, being a command economy, can control prices and ration demand, and its refiners lose money on selling its products at home. If prices are liberalized, daily demand could increase by another 150,000 barrels, Morse said. For more on this, see the January issue of Oil and Gas Investor. For a subscription, call 713-260-6441.

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