Warnings of oil running out are just baloney

How much would you pay for a barrel of Irish rainwater?

Not much I guess, as it is heavily oversupplied despite being told that water is an increasingly scarce resource worldwide.

This baloney about world ending “facts” applies to the oil market too, and anyone betting on oil prices rising continuously are advised to think twice.

Last week Saudi Arabia, the world’s largest producer of oil, cut production. Was that because they were running out it? Nope. Was it because they had passed peak oil levels and face a future riding camels? Wrong again. No, the reason is because they are concerned oil prices are starting to fall. A vast improvement in fuel efficiency across the world, the collapse in natural gas prices due to huge supplies, and the effect of shale oil finds in western geographies are the reasons why oil is on the back foot.

The US, in this context, is strategically important. It is now forecast that the country could produce enough shale oil for domestic needs by 2017. Imagine, instead of being reliant on undemocratic and highly unstable middle east states, the US could produce its own energy. Throw on top of this a number of mega oil finds off places like Norway and Brazil to understand why the bulls in oil markets are getting nervous.

Oil prices have flattened and weakened over recent months despite Iran, a major producer, being almost shut out of global markets as sanctions bite. With competing energy prices in freefall (natural gas especially) you wonder what could happen next to oil prices.

We should be cheering loudly. Ireland, and Europe, is hugely dependent on imported oil. A collapse in its price would equate to a tax cut for companies and consumers alike. It would lower the cost of running economies and provide a stimulant to consumer spending in recession-mired countries.

Contrast this with those who keep telling us the world is running out of oil and we face massive energy inflation. In their world we all need to install windmills on our heads to survive an apocalyptic future.

There is one small problem with that. Wind energy is expensive to produce because it is capital intensive and turbines are expensive.

In fact, you need oil at about $100 per barrel in order to give wind any viability as an alternative source of energy. This is why the UK shoved price increases down consumers throats last month as it rigged market prices upwards to make wind viable.

Imagine now if oil collapses to, say, fifty bucks. You would think that is not possible until realising certain oil fields in places like Iraq and Saudi are still pulling oil up at a cost of about $10 per barrel.

This $100 oil malarkey is a function of an explicit cartel (OPEC), dangerously unregulated commodity oil trading in global investment banks and the background noise of those who think oil will soon be extinct.

Ireland is the equivalent of Saudi Arabia in the rainfall market. It is gushing, available everywhere and accessible almost for free. It is a commodity that, apparently, will disappear across the world shortly and force enormous food inflation upon consumers, according to the same gang that tell us oil is a precious resource.

If they are right, we should be building huge water refineries, establishing a cartel (OWEC, the Organisation of Water Exporting Countries?) and start talking of peak water.

I’m more inclined to bet that oil prices are heading down in a big way as the actions of consumers and governments shift the demand-supply dynamic enough to allow market forces kick in.

Taking oil prices down sharply and removing dependence on the Middle East is, I suspect, a strategic objective of the US. We should all applaud its efforts and ignore the scare mongering that percolates incessantly from the Malthusians.


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