Despite the recent drop in oil prices, the outlook for the remainder of the year is not good. If the IEA numbers are correct the world is probably burning more oil each day than is coming out of the ground, with the difference being made up from the 2.6 billion barrel stockpiles held by the OECD countries. Every day brings new stories of coal, electric power and oil product shortages in some corner of the world. The climate too is not cooperating with significant crop failures imminent in many parts of the world and the water levels at numerous hydro dams, particularly in Asia, falling rapidly.

Behind much of oil's recent price drop is the concern among oil traders that economic growth was not going as well in the U.S. and China as had been hoped. In the case of the US this is probably not a bad concern as much of the so-called recovery that is supposed to be taking place is based on hype and selective interpretation of suspect economic statistics. In reality, there has been very little improvement in the US economy this year other than the lingering effects of 2009's $800 billion stimulus package.

This summer should prove interesting for the U.S. economy as Congress is starting to debate the debt ceiling and what are likely to be major cuts in federal spending in the next fiscal year or two. Whether cutting federal spending will help the economy grow or simply add to the scope and depth of the recession remains to be seen.

Despite market concerns about what Beijing's efforts to control inflation will do to its economic growth, China's economy seems to be growing nicely this year with industrial production and electricity output up by circa 12 percent over last and the GDP growth close to 9 percent. Even in China, however, there are clouds on the horizon. Droughts have resulted in large increases in the cost of food and significant reductions in hydroelectric output. On top of this, China's coal production which has been growing at an annual rate of about 10 percent for the last 15 years is showing signs of running out of steam.

Chinese coal production is now in excess of 3 billion tons a year, roughly triple that of the U.S. To keep coal production growing at an annual rate of 10 percent means that the Chinese not only have to dig up an additional 300 million tons each year, but they have to ship it hundreds of miles to power plants along the sea coast. Apparently coal is not arriving at power plants in the quantities necessary to sustain a 12 percent growth in electricity production as reports of electricity shortages are increasing. Some of these reports are saying that industrial output is already being harmed, and the hot summer which normally increases electricity demand has not yet started.

Coal shortages and occasional power outages are being reported in scattered parts of India while its domestic coal industry simply cannot keep up with industrial growth and the demand for increasing amounts of electrical power by India's 1.2 billion people. Although they do not have the currency reserves the Chinese have, India can probably afford to import the energy they need either in the form of coal, natural gas, or oil products to keep their economy moving.

Japan's nuclear power problems seem to grow by the day with three more power reactors being closed last week as being too vulnerable to the earthquake/tsunami threat that destroyed the Fukushima installation. All this says there will be more power shortages for the Japanese and more imported oil, coal, and natural gas coming from the world market. What we are seeing here is three of the world's largest economies -- China, Japan, and India --- running short of energy to run and grow their nations and consequently being forced to turn to increasing amounts of imported fuel.

Many other countries, most notably Pakistan, Nepal, and Bangladesh are reporting serious power shortages, but in these countries importing $100 oil and $130 coal is a problem as many cannot afford imported oil to run backup generators - or anything else for that matter.

In the last few months, the "Arab Awakening" and the subsequent uprisings in Libya and Yemen have taken oil off the export markets and trouble is brewing in other Middle Eastern countries that are significant oil producers. Even the Venezuelans are having power problems that could reduce oil production in coming months.

When the reduction in the quantity of oil coming from OPEC producers is combined with increasing demand from advanced, but power-short countries, we have the recipe for higher, perhaps much higher, prices ahead, In the U.S. oil traders focus on falling gasoline demand (but not the total demand for oil products) and rising crude stockpiles. While these were once important indicators and drivers for the global oil market, they no longer are.

In the U.S., size of oil stockpiles is more a function of how much U.S. oil companies purchase and import in a given week. In North America, where the government does not subsidize oil prices, refineries are free to purchase as much oil as they need as high prices can be passed directly to consumers. Importing countries with subsidies frequently cap the retail price of oil prices forcing oil companies, some of which are state owned, to swallow the losses due to higher oil prices. In recent weeks we have seen this phenomenon happening in Russia and China. Both countries cap consumer prices and both have suffered shortages of oil products as their oil companies sought to make money by exporting to the world markets.

The banning of diesel exports from China and all oil products from Russia are already being felt by their traditional consumers who are turning to OPEC exporters to keep their societies functioning.

Turmoil in the Middle East, lower OPEC production, droughts, electricity shortages, robust economic growth in China, the Japanese nuclear crisis and oil export bans all say higher oil prices are on the way. A few percentage points drop in U.S. gasoline consumption no longer compensates for what is going on in the rest of the world.

Tom Whipple is a retired government analyst and has been following the peak oil issue for several years.