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'Demand will be going up, but it will be constrained by supply,' Mulva said. 'I don't think we are going to see the supply going over 100 million barrels a day, and the reason is: Where is all that going to come from?'

Who is Mulva?  Just James Mulva, the CEO of ConocoPhillips (COP).  Why is that significant? Because right now the world demand for oil is about 87 million barrels a day, and the International Oil Agency predicts that demand will grow to 116 million barrels a day by 2030. 

Clearly demand can not be 116 million barrels if supply is only 100 million at most.  However, even the International Energy Agency (IEA) is not that sure about things, Faith Birol is the Chief Economist at the IEA, and the following is a quote from an interview in the Financial Times.

'On the energy security, oil prices part, the numbers, one doesn't need to be a big energy expert or anything: it's just mathematics. I can tell you that we, in the next seven to eight years, need to bring about 37.5 million barrels per day of oil into the markets, for two reasons. One, the increase in the demand, about one third of it, and two thirds, there is a decline in the existing fields [and there is a need] to compensate for the decline. (...) [What] we expect [to be put in production] is 25 million barrels per day, and this is in the case of no slippages, no delays in the projects, and everything goes on time, which is very rare. So, there is a gap of 13.5 [sic] million barrels per day. (...) within the next seven years.'

Yes, oil prices have been on a tear in recent months, partially reflecting the decision of the Fed to put the dollar on the sacrificial altar.  Last week, they almost touched the $100 mark, which, depending on how you measure it, is close to an all-time inflation-adjusted high.  Since then, oil prices have dropped back to about the $90 level. 

With the U.S. economy slowing, there might be a little more room for oil prices to decline in the short run, but don't count on any long-term decline.  China and India continue to grow at breakneck rates, and there seems to be little evidence that the growth is going to stop.  On a per capita basis, both use far less than we do. In the case of India, per capita oil consumption is about 5% of U.S. levels.  While China has recently raised its internal prices for diesel and gasoline, prices there are still subsidized.  India has not yet raised consumer prices, but is likely to soon, but not to levels that reflect the current price of crude. 

Thus, it seems unlikely that high oil prices are going to choke off growth in either economy.  China, of course, has enormous and growing foreign currency reserves, so it's not like the subsidy is going to break the bank for the government.  Eventually, higher oil prices might lead to a slowdown in growth, but we are not seeing it yet.  Heck, even in the U.S., where there are no explicit government subsidies of gas prices, we have not yet seen a significant decline in gasoline demand -- and our economy is not growing, nor is it ever likely to grow, at anything near the rate of China and India.

The take away, yes there might be a short-term pull back in oil prices, But the long-term direction is still up and will be for a long time.

Read the full analyst report on COP.