U.S. demand for energy-coupled with growing Chinese demand and the realities of peaking worldwide production-should continue to drive up oil prices for at least the next few years.

U.S. oil demand has increased an average 1.7% per year during the past decade while gross domestic product has increased 3% per year, Lehman Brothers managing director and chief energy economist Edward Morse said at the Deloitte oil and gas conference in Houston last month. If this trend continues, U.S. daily demand will grow by 300,000 barrels in 2007.

Meanwhile, annual worldwide oil consumption has increased from 21.8 billion barrels in 1981 to 31 billion in 2005. The U.S. consumes about 15 million barrels a day.

China is adding the equivalent of a city the size of Houston to its urban infrastructure every year, and will likely consume an additional 500,000 to 700,000 barrels per day in 2007, Morse added.

China, being a command economy, can control prices and ration demand, and its refiners lose money on selling its products at home. If prices are liberalized, daily demand could increase by another 150,000 barrels, Morse said.

Demand in OPEC nations has also increased an estimated 500,000 barrels a day, totaling 8.7% of world oil demand, up from 7.7% in 2001. These increases are due to accelerating GDP growth as well as inefficient energy use in OPEC economies. Morse said current OPEC-nation estimates do not account for direct-burn consumption and they underestimate Iran's demand.

OPEC is to blame for current high oil prices, he added. "OPEC leaders have a tendency to blame others for why production growth is low, but really, the culprit is OPEC," Morse said. In 2000, OPEC promised to increase production by 5 million barrels a day by 2005. If that figure had been met, Morse said oil would likely now be $40 a barrel.

Instead, Venezuela produces almost 2 million barrels a day less than it did when President Hugo Chavez took office, Iraq produces less than 2 million barrels a day since the U.S. overthrow of Saddam Hussein, and the "Project Kuwait" foreign-investment plan has not come to fruition. Additionally, Iran has not been able to access domestic and foreign capital, and production is expected to decline there in 2007.

The U.S. was lucky in 2006, he said. "There was no 'perfect storm.' There was no storm season. There was no gas season." Hurricanes typically disrupt production in the Gulf of Mexico by 400,000 barrels a day.