Price of black gold makes for a bleak analysis
Such prices should encourage oil producers to increase supply, but that’s unlikely to happen.
In a pretty bleak analysis, Alan McQuaid, chief economist, Bloxham Stockbrokers, says the high cost of producing more and political constraints on new supplies does not augur well.
In his view, the market will struggle to keep pace with growing demand in emerging markets.
For instance, Russia will produce less oil this year than last. With political unrest continuing, Nigeria may produce less due to a lack of investment.
“In our view prices will have to stay high in the long-term to encourage exploration and production,” Mr McQuaid said.
His views should not come as a shock.
For some time we have pointed out that supply and demand are on a knife-edge and the point has been reached where oil supplies start to run out.
Some argue this is propaganda and point to the huge amount of forward buying of oil by speculators, desperately seeking refuge not just in oil, but also gold and food commodities, as the dollar goes south.
Critics of the record oil price regime, which has been with us for some time, argue we are looking at the next investment bubble.
They may be right about food stuffs and gold, but it is getting more difficult to envisage how the price of oil is going to get much cheaper in the years ahead.
Respected analysts forecast oil could hit $200 per barrel with a few years and the reality is that since 2003, the cost continued to rise.
APSO, The Association for the Study of Peak Oil and Gas, a network of scientists and geologists affiliated with a wide array of global universities, is adamant the game is up as far as cheap energy is concerned.
Oil supplies are starting to run down as political and other uncertainties result in a sharp fall in investment.
It is more difficult for oil producers and processors to meet the rising demand and the outlook for prices on that basis alone is grim.
For those and other reasons supply and demand will be at odds for some time, even if the world moves into slower growth for a period.
China and India have developed voracious appetites for energy as they move to higher standards of living.
But APSO, whose founder Colin Campbell now lives in west Cork, says the world still has not fully grasped the seriousness of the situation.
Their contention is that we are at the point where we are burning more oil and gas than is being found.
This is a first for the world as we know it.
At its starkest it means, for the first time in the history of a modern world, built on the back of plentiful and cheap supplies of oil and gas, we are faced with the uncomfortable reality that our chief energy source is running out.
Worst case scenarios suggest we could be out of oil supplies, in any meaningful sense, by 2060.
That in a very real way is the story of the rising cost of oil that has massive implications for the globe.
Admittedly, it is not the full story, as Alan McQuaid points out in his analysis.
Access to big sources of reserves is getting harder and projects are becoming more complex, increasing the risk of delays.
In McQuaid’s view, the bottom line is that international oil companies don’t have as much access to the oil as they had in the past.
“That and other hindrances are slowing down the supply response, and while the supply price might eventually get better, it won’t happen right away.”
Those who have watched oil prices drift upwards since 2003 will not be convinced that they will ease back by much. Increasingly, it looks as if the price per barrel of around $100 is here to stay.
