Today’s high oil prices could be here to stay

updated 5:51 p.m. ET June 12, 2008

PARIS - Damien Barilko, co-founder of the Paris electric bike company Velocito, said sky-high gas prices have finally succeeded where environmental campaigners and governments have failed: persuading motorists to go green.

Many customers who have done the math are laying down $4,600 on eco-friendly bikes, but their reasons are different from those of Barilko, who said he likes the product because it is "a clean mode of transportation."

"Most people come for economic reasons. The ecological reasons are an afterthought," he said. Nevertheless, sales have doubled each year since Barilko opened his first store in 2005.

While consumers and governments struggle with steep oil prices, one of the biggest questions looming over the global economy is this: Will costs ever come down? Unlike the energy crisis of the 1970s, when the world assumed the spike was temporary, high energy prices could be here to stay, according to oil experts.

"The power of the market is far more powerful than the government," said Platts Global Director of Oil John Kingston. "Most people are convinced that this is not going to go away."

Oil rose last week to nearly $140 a barrel — a once-unimaginable level. There are signs that eye-popping prices are curbing the appetite for oil in developed countries, but economists and energy experts said the rules have changed, and that might not even matter anymore.

The International Energy Agency predicts global demand for petroleum products such as gasoline, diesel and heating oil will grow by 0.9 percent, or 800,000 barrels a day, in 2008. That's down from the 1.2 percent, or 1 million barrels, the IEA forecast earlier this year.

But demand in developing countries, particularly China, continues to accelerate, according to the Paris-based energy watchdog.

"Whatever cuts are made today by the major players of 30 years ago are all going to be eaten up by nations that weren't even on the radar screen then," said Global Insight analyst Mary Novak. "There is no more supply. There is only demand."

Developing nations have subsidized fuel to ensure peace and to support economic growth. But those policies have begun to falter.

Malaysia and India, groaning under the weight of high fuel prices, have just begun cutting subsidies. Analysts such as Michael Lynch of Strategic Energy & Economic Research in Winchester, Mass., said others will follow.

"At this level of prices, very few countries can afford subsidies if they are importing," he said.

But there is political pressure to help consumers being hurt by high prices.

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