Supply and DemandWhile spikes in energy prices can occur for a number of reasons, long-term price direction is almost always determined by supply and demand. Certainly, 2004 had its share of exogenous variables in the oil markets: instability in the Middle East, uncertainty in Venezuela, production issues in Saudi Arabia, strikes and strife in Nigeria, and challenges toward capitalism in Russia, just to name a few. All of those issues contributed to the price acceleration in crude and created what many called an unsustainable "risk premium" in the price. While all of those variables certainly had an impact, so too did the impact of rising global demand for crude. Whether it was the acceleration in development in China or India or the slow but steady improvement in the global economy, demand for all energy sources -- crude, natural gas and coal alike -- increased in 2004. While the debate will rage about what rate of growth China will post in 2005, the fact is that the burgeoning country will continue to use more, not less, energy. As a result, global demand is likely to continue to rise into the new year.
More Rigs, Less Oil and Gas, Means More RigsThat may seem confusing, but it's really simple. In 2004, over 50% more drilling rigs ran in the U.S. than in the year before, but natural gas production barely budged. As I noted in an