“As oil prices near $50 a barrel, a fundamental difference between this oil crunch and prior ones is becoming clear: This one is less acute, but it may prove to be more chronic,” writes Jeffrey Ball in today’s Wall Street Journal.

“So far, the current oil-price surge still trails the big blows of the past. In inflation-adjusted dollars, oil peaked in 1981 at $73 a barrel, 55% above where it’s trading now. Back then, moreover, the oil crisis sparked a full-blown recession. Today, despite some signs of a slowing, the economy continues to grow — and, with it, oil demand.”

“It’s precisely the steadily rising demand, however, that is worrying the market. Unlike in the 1970s, the problem this time isn’t primarily a supply shock in which the world’s biggest oil spigots have been shut off. It’s that, even though they’re wide open, the world is consuming pretty much everything that comes out of the ground. The resulting fear is that isolated supply disruptions — a change in government in Venezuela, say, or a terrorist attack in the Middle East — could push prices even higher.”

“ ‘If the world can return to equilibrium, I think that, in the near term, there’s adequate supply,’ says J. Robinson West, chairman of PFC Energy, a Washington-based energy-consulting firm. But, he adds, ‘in the long term, unless demand is dealt with, this is not a good sign for the global economy.’ “

“The world is estimated to be consuming an average of 81.7 million barrels of oil per day this year. That’s up 2.5% from a year ago — a big jump.”

“The biggest demand surge is coming from China and India. China’s government said yesterday that the country’s oil refineries have processed 17% more crude so far this year than in the like period last year, and that crude imports have risen nearly 40%. India’s government-owned refiner, Indian Oil Corp., said it expects India’s crude imports to rise 11% during the company’s 2004-05 business year.”

“In the U.S. — the world’s biggest oil consumer and thus the market that sets global prices — demand in the second quarter grew 3.5% over the year-earlier quarter. Still, commercial inventories of crude oil are 5% above last year’s level, and gasoline stocks are up 4.5%.”

“Some observers see the U.S. inventory levels as evidence that there’s plenty of oil to meet growing demand and that today’s oil price is largely the result of excessive speculation. Trading volume has soared in recent months as hedge funds and other fast-moving traders have headed into the oil markets. ‘I don’t think the fundamentals support prices anywhere close to this level,’ says Kyle Cooper, an oil analyst at Citigroup in Houston. He believes prices should be closer to $30.”