High oil prices threaten future prosperity
Sceptics, however, suggest there is enough oil to go round. The Press Association earlier in the week reported a claim by American Tim Evans, senior energy analyst at Thompson Financial’s IFR Energy Service in New York, that prices could slump back to $28 before many months are out.
His $400 dollar a pop monthly energy report is snapped by the top players in the industry. Evans believes we are in nothing more than a speculative bubble.
Greedy speculators are jumping on the bandwagon, buying oil forward at $55 per barrel in the belief it will be worth double that figure in a few years.
Speculators have simply got caught up in the hype and they are in for a roasting. Evans’s basic point is that with 1.8 million barrels a day of spare daily capacity, Saudi Arabia can make up the shortfall to offset any supply shortages or unexpected disruptions.
For many analysts that is too cosy a view. They question the Saudi ability to deliver much beyond current capacity. They also seriously question the level of reserves the Saudis claim to have in the ground.
Those deeply worried about the current situation argue it is becoming increasingly clear that demand for oil will in a matter of years outstrip supply.
On Thursday the International Monetary Fund introduced a dose of realism to what’s happening in the oil markets at present.
It warned oil could spike up at $105pb in the current climate, an idea that would have been unthinkable a few months ago.
IMF chief Rodrigo Rato warned that the impact of dearer energy prices would be to shave between 0.25 and 0.5% off global economic growth this year.
IMF officials said high oil prices were now a “permanent shock” for the world.
“To the extent that there is some kind of a supply disruption, $100 a barrel does not seem outlandish,” IMF’s senior economist Raghuram Rajan said.
The investment bank predicted oil prices could go as high as $105 a barrel over the medium term, with US prices now in the early stages of a “super spike” period and Chinese growth rates showing no signs of flagging.
Oil consumption will increase from about 82 million barrels a day last year to almost 140m in 2030.
In that period China will contribute almost a quarter to the increase in demand due to its fast economic growth and large population, the IMF said.
The number of vehicles in China could rocket from 21 million in 2002 to almost 390 million in 2030, the IMF forecast.
Projections such as that debunk the speculative angle to this story.
But for the record, the IMF says that much dearer oil prices will not be as damaging as they were in the past given the level of conservation built into most Western economies at this juncture.
Here’s another thought. In the US the cost of petrol is about quarter what we pay for it here in Europe while the US guzzles 20% of the daily output of the 84m barrels consumed globally on a daily basis.
In Lisbon next month oil analysts will converge at the Peak Oil conference.
This is made up essentially of former heavy hitters in the industry who have deep concerns about the state of the sector and our ability to cope with the mounting pressures facing the globe as oil supplies wind down.
At its simplest, our appetite for energy is growing at an enormous rate while by 2010 oil reserves will have started to decline for the first time since oil was discovered.
Nobody is forecasting gloom and doom here, but we are facing challenging times that if not dealt with have serious implications for the entire world.
Given the entire global system is based on improving living standards, the demands that places on world energy supplies is growing all the time.
If we fail to find alternatives the implications for the world as we know it are quite massive.
At best guess alternative energy sources will deliver only 10-15% of energy needs over the next decade and it looks as if the long term implications for economic growth are becoming increasingly serious.
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