When demand curves shift right, it means something has changed which favours higher prices per unit for producers. This is essentially what is happening, one commodity at a time, in the resource market – especially with oil.
Oil prices rise when demand grows faster than supply, resulting in the rightward shift of the demand curve. The curve also shifts right when there aren’t any substitutes to erode the demand for a given commodity. Are there substitutes for oil? There are some, but it depends on what you’re using it for. And these days, the traditional substitutes for oil – natural gas and coal – have their own problems, like depletion and a growing backlash against carbon dioxide. Another shift to the right.
The cure for high prices is, of course, high prices. The demand curve stops shifting to the right once prices get so high they actually destroy demand. This is what’s known as “demand destruction”. We may see that in base metals and energy before too long.
The Daily Reckoning Australia