Oil prices have crossed the $125 per barrel mark. They have risen by almost 400% in the last five years. The reasons for such a phenomenal rise are many: one, the boom in the global economy that is being witnessed across the globe, that too, for a long time now; two, post-2003, almost 90% of the demand for oil essentially coming from developing economies such as China and India, which are considered less efficient in using oil vis-á-vis developed countries such as the US—where, according to Rosenfeld, simply by using more efficient fridges over the years Americans have saved more than 200 twh annually, said to be equivalent to the production of 80 power plants—adding additional demand for oil; three, the increased purchasing power among the middle-class of developing countries that has resulted in a substantial increase in the demand for private transportation; and four, the fact of quoting oil prices in dollars—a currency that has depreciated by almost 25% in real effective terms since 2002— has only made oil sound cheaper in non-dollar regions leading to increased demand for oil from such zones.

That aside, a falling dollar has resulted in reduced returns from the dollar-denominated financial assets. This has obviously diverted investors' attention to commodities—whose prices are always known to be impacted by supply-side glitches—as a class of investment assets. And, amidst such turmoil, it is no wonder that speculation has fueled the oil prices further, though the market considers its impact on current price rise as certainly not that big. Now, the question is: What does oil price rise mean? It simply means that oil is a finite resource. And so long does the demand for its consumption continue uninterrupted from the developing economies led by the economic growth in China and India and so long does the Western economy continue with its reluctance to learn lessons from the recurring price rises, the oil-crisis is sure to persist.

The Analyst Magazine, Oil Prices, Western Economy, Transportation Sectors, Global Economy, Oil Markets, Public Transport System, Demand Management, Global Transportation Markets, Financial Assets, Global Oil Consumption.