The rise in oil prices is the most important factor boosting the competitiveness of alternative fuels, including biofuels. The unprecedented 6-year rise in oil prices has prolonged opportunities for efficiency gains, stimulated energy conservation, and generated increased supply from traditional and alternative energy sources. While these adjustments may eventually lower oil prices, most forecasts do not show real prices falling below $50 per barrel.
Previous periods of high oil prices were short. Prices tended to rise very sharply, usually induced by military conflict, peaked in a matter of weeks or months, and then declined sharply. Following these price spikes, the rapid decline in petroleum prices made it difficult to sustain alternative fuel programs and reduced incentives for consumers to curb their use of petroleum products.
Unlike previous high-price periods, the current oil market is driven by strong demand-side factors. These factors include robust economic growth and rising oil demand from rapidly growing middle-income economies, where consumers are demanding a higher standard of living and exhibiting big appetites for energy. Almost two-thirds of recent global growth in oil demand has come from China and other middle-income economies.
Source: USDA – Amber Waves