Oil prices fuel concern for dollar’s fate
Freezing conditions have bumped up oil demand and New York prices have gone back over $52 per barrel.
This is not quite panic time, but it is salutary to note this is all post-Iraq.
Before the Iraq War by the US and Britain, oil was trading at around $24pb.
That indeed may have been unrealistic and it is now argued that by going into Iraq, the US highlighted fears about the fragility of world oil supplies.
This week we are just a few dollars short of the all-time high of over $55pb some months ago. That we are back near the historic high is a by-product of the fragility we have spoken about.
Meanwhile, China and other less developed countries have started to burrow into the reserves available and countries like the US who guzzle fuel on a daily basis are terrified of running out.
If it was available at the time, the right to burn oil with abandon would have been given the same status as the right to pursue happiness in the Declaration of Independence in 1776 as a fundamental human right.
The passion with which they have pursued such an energy policy is touchingly naive and the day of reckoning is looming for us all, not just our US friends. On a more optimistic note, BP chairman Peter Sutherland, a former Irish Attorney General, says there is no cause for concern. “I don’t think we can speak of an apocalyptic situation,” Sutherland told the Europa Press energy forum, noting reserves should suffice until well into the second half of the century.
But he added that it would be impossible to forecast price movements, which are essentially linked to the situation in the Middle East.
Despite the Russian government seizing control of Russian oil giant Yukos’ bank accounts last year, Sutherland told the forum that BP’s relations with Moscow were good and insisted it saw “no sign of government interference” in the firm’s activities.
Sutherland said he did not foresee energy sector consolidation in Europe among major players. He added that BP, which has invested heavily in solar energy in Spain, was seeking out alternative sources of energy but saw its continuing focus based around oil and gas.
There is a touch of whistling past the graveyard about the BP supremo’s remarks.
Mr Sutherland is of a sunny disposition and no doubt the $130 million he has netted thanks to his chairmanship of Goldman Sachs makes his perspective more benign.
The Middle East is far from resolved however, and the scramble for security of oil supplies will become a bigger issue with each passing barrel that is converted into greenhouse gasses. This planet is increasingly under attack from the over use of fossil fuels and on the other hand, from their depletion.
It looks depressingly as if there is no dignified solution to this dilemma.
Both the US and British governments lied to get their guns and tanks into Iraq.
Oil was a huge motivating factor and it is hard to see how that scenario is going to change anytime soon.
Dearer oil and scarcer oil is doing no favours for the dollar either.
Two years back this newspaper carried a story suggesting a serious run on the dollar was becoming a distinct possibility.
Will Hutton, chief executive of The Work Foundation in Britain and former editor in chief at The Observer sniffed all was not well with the biggest economy in the world.
His forecast was given credence this week when an Irish economist, Dan McLaughlin warned the dollar was close to crisis.
That’s in no one’s interest, but it may have to happen at this stage to force the US to better manage its own fiscal and economic affairs.
For sure we can expect a further 15% fall in the value of the dollar in the coming months, whatever about an out-and-out crisis.
