The price of crude oil is not only reaching new heights in nominal terms but approaching the record real levels seen in 1979. The significance of this latest “energy shock”, however, is perceived generally to be quite minor.

Consensus oil price forecasts one year forward, for example, remained at about $25 per barrel from 2000 until the end of 2004, when spot prices were already around $50 a barrel. The gap between consensus and spot prices has narrowed recently but the world still seems reluctant to buy into high oil prices for anything but the immediate future. It behoves us to ask if there might be more on the oil price menu than the normal fare of Chinese demand, temporary shortages of refining capacity and the occasional hurricane. There areperhaps three main areas that are generating new concern about the outlook for oil prices: context, supply and the effects on the world economy.