The Future of Oil, Forecasts and the Threat of Higher Oil Prices to Economic Growth

Arlington, VA — June 26, 2008 — The rise in the price of oil since 2003, and particularly since mid-2007, poses a challenge for the economy and manufacturers despite increased efficiency in energy consumption, and policymakers must focus on expanding all types of energy, argues a new report from the Manufacturers Alliance/MAPI.

In "The Future of Oil: Are We There Yet?", Donald A. Norman, an economist and author of the report, looks at the drivers of oil consumption — supply and demand conditions, and geopolitical risks, as well as factors such as the fall in the value of the dollar, speculation and the lack of refining capacity that some believe have contributed to the dramatic and prolonged rise in the price of oil.

The oil price spikes have created headwinds for the manufacturing sector and the overall economy. Norman writes that the extent to which economic growth could be reduced depends on the extent to which a combination of the following occurs:

  • the costs of alternative sources of energy such as wind and solar power, other renewable forms of energy or unconventional sources of oil like oil shale, fall significantly while their supplies increase;
  • cost-effective improvements in energy efficiency beyond those built into current projections become available; and,
  • capital investment increases, thereby substituting for oil's reduced contributions to economic growth.