Oil prices are at a two-year high, and a big part of this is surging demand from China. Platts reported this week that China’s oil demand surged to an all-time high in November and demand for the first 11 months of 2010 is up nearly 11 per cent over 2009. The Chinese government has even moved to raise the price of domestically refined oil to keep demand (and inflation) in check. Expect prices to rise into triple-digit territory in the first quarter of 2011, says economist-turned-writer Jeff Rubin, author of award-winning Why Your World Is About to Get a Whole Lot Smaller. He also believes that in 2011 we’ll surpass the $147-a-barrel mark that we reached in July 2008.

It has been about 18 months since Rubin’s book came out and since that time a lot has happened around the world, including the BP oil spill. I figured I’d get an update from the former chief economist of CIBC World Markets. My Q&A with him, which I had a chance to do last week, can be read here in the Toronto Star.

I found his thoughts on shale gas most intriguing: “Is shale gas the sub-prime mortgage market of the natural gas market? Is this one giant con and investors are being conned into thinking there’s a huge supply of gas at $4 when it really costs $7 or $8 to bring it to market? In the fullness of time economics will assert itself, just as it did in the sub-prime mortgage market.”

My Clean Break column today looks at the high risks petroleum companies are prepared to take to hunt down and extract new oil reserves in a world where all the easy oil is gone. BP reported this week that the Gulf of Mexico oil spill will cost it more than $40 billion, a single-event expense that won’t begin to cover the full economic and environmental costs of the spill. Imagine if $40 billion had instead been spent on clean energy technologies? Why is it that the big oil companies only take risks when it comes to perpetuating a dirty, unsustainable business? Bottom line: Our priorities are messed up.