Crisis of rising oil price won’t go away
For consumers that’s all very fine, allowing for the fact that the price per litre of petrol has gone from 95c to 101c in the last six months. By the end of this month that will probably be over 103c per litre and on current indications it looks destined to climb further.
On Thursday the price of oil per barrel went over $60, a record in nominal terms in the price history for the black gold. To put that in context it would need to hit over $90 per barrel to replicate the previous record last reached for oil in the mid 1980s. Short term, at least, the ramifications of the cost of oil is less in economic terms than it was then.
Homes and factories have become more efficient as efficiency became a mantra for most businesses. They had to adapt. It was either that or sink under the pressure of mounting oil costs.
Without doubt they were times of high drama and it took the global economy a long time to adapt to the reality that oil was about to cost more than the $12 per barrel where it was when the first crisis caught us offguard in 1973/74.
The disciplines learned then have not been lost and at this stage oil accounts for about 4% of global GDP compared with over 8% back then.
What’s different now is that supply of oil is the big conundrum. Demand and supply are running neck and neck. It is the case that OPEC is producing oil as hard and as fast as it can.
Its announcement this week that it would lift output by a further 500,000 barrels per day had no impact on the market. It’s a simple fact that OPEC cannot produce any more than it is already taking out of the ground.
The demand for oil is continuing to increase. China with 1,300 million people will have an insatiable appetite for energy as the economy continues to grow. Its citizens are getting richer and are demanding lifestyles comparable with those in the West.
The US with just one sixth of China’s population is guzzling 25% of the 84 million barrels of oil taken out of the ground daily.
It remains oblivious to the crisis that is slowly building across the globe. The International Energy Agency recently revised its view that oil supplies would peak in 2030.
They now say this will happen before 2010 - the time frame that some industry experts in Europe have been saying for some time, including Colin Campbell of Peak Oil.
The implications of this are huge and we could be looking at a global recession, partially induced by the continuing rise in the price of oil which Goldman Sachs is warning could hit $100 per barrel any time soon.
At that point we are gone above the last peak hit in 1980 and the laughing will stop at that point. If we are to sustain global growth we will need an increasing energy supply which is beginning to wind down.
The two positions are contradictory. Either we find alternatives very fast or we could be looking at a massive recession. Already economists are talking inflation as a result of current oil prices. RTÉ belatedly majored on the topic on Thursday night in its Network 2 late bulletin. So it’s now official: we have a crisis on our hands.
The Green Party and Eamon Ryan TD in particular has been urging radical action from the Government arguing the administration has failed to grasp the seriousness of the situation.
Demand for fuel has begun to outstrip supply. If this issue isn’t dealt with the economy as we know it will cease to exist. We simply won’t have the energy to produce what we need.
In the short term the nuclear option may become the only option, a prospect deemed unthinkable a year ago.
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