Morgan Stanley: "Higher [oil] prices will be needed to ration demand"

As you may know, it is not only our transportation system, but our nation's entire economy that runs on oil. As a result, Morgan Stanley's prediction of an upcoming oil shortage - which will, of course, result in higher prices - should be a cause for concern to all of us.

In case you haven't noticed, the economy is already in bad shape. Any talk about recovery is meaningless to so many unemployed and underemployed Americans. But Morgan Stanley's report means that even the level of stability that we now have cannot be maintained.

As Bloomberg.com's Dinakar Sethuraman reported on Monday, Morgan Stanley released a research report that predicted that spare production capacity of crude oil will drop to "untenable levels" by the end of 2012. Following that, "[t]ighter, impossible levels of spare capacity are seen from 2013 to 2015."

Since it won't be easy to decrease the amount of oil we consume, Morgan Stanley asserts that "higher prices will be needed to ration demand."

Look, I don't drive enough for higher prices at the pump to bother me. Instead, what I and many experts are worried about is that the price of a barrel of oil will get high enough to upset the applecart of our economy, kind of like it did in 2008 when oil peaked at $147. I know that other factors were also in play (the mortgage crisis, for instance) but let's face it, those other factors have not gone away and will not go away in the next few years.

The far-ranging ramifications of a persistently high price of oil is not good news, but if I have startled you from complacency I may have done you a favor.


** Here's an article, from The Oil Drum blog, which explains why recession results after the price of oil reaches $80 per barrel or higher (btw, that is where we are at right now).

** For more on this topic also see "Temporary Recession or the End of Growth," by Richard Heinberg.