If we had a free market in oil then we could expect a more orderly rise in fuel prices as the end approaches -- maybe in the half-century to come. This would encourage a more realistic valuation by the oil corporations and enable efficient allocation of their considerable resources into research and development of alternative sources of energy for the future.
But a free market also depends on full and free information. And this is what we don't have in the case of oil. Aramco (effectively, the Saudi Arabian royal family) -- the company which owns Saudi Arabian oil -- refuses to release information on the size of its total estimated resources. Saudi Arabia has hitherto been regarded as the largest resource in the world but Simmonds, and one or two other experts, consider that its oil is on the edge of a decline, though there is still a large gasfield yet to be exploited.
The Russian Kremlin, which has regained control over most of the major oil and gas fields in Siberia in recent years, is also secretive about its reserves.
The only other significant future source of oil and gas -- northern Iraq -- has not been fully prospected. It is believed that there are about 75 oilfields there and the total reserves, if the truth were known, might well make them the largest of all at present. There is, of course, no production of oil from the one or two northern oilfields that have already been developed because, since the American invasion, terrorists blow up the pipelines whenever they become operational.
There are those who say that we shouldn't worry. The present spike in oil prices is only due to rumours. The "real" price should not be $50 or $60 a barrel, but more like $25 or $30. But this is begging the question. The rumours only have such violent effects because oil is such an important resource in the modern world. Civilisation everywhere would collapse even if there were a decrease of as little as 10% in oil's supply. It would take many years for the ample coal resources of the world to make up the difference.
Meanwhile, let us remember that, even at $60 a barrel, oil is nowhere near as expensive as it was in real terms in the 1950s and '60s when economic growth was going at full spate. The fact that Japan and Western Europe (and, shortly, America when the property boom collapses) now have stagnant economies in which consumers are on strike and governments are steadily going bankrupt is nothing to do with the price of oil. It has much more to do with the consumer revolution coming to an end. Most of us have more than enough goodies than we have time or energy to consume. It is only China large population that is now sustaining world economic growth -- and, of course, paying for the debts of the American government by buying US Treasury Bonds in large amounts.
Keith Hudson
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OIL PUSHED TO NEAR $60 LEVEL
Kevin Morrison and Javier Bias
Oil prices rose close to $60 a barrel on Monday on the threat of an oil workers' strike in Norway, the world's third largest oil exporter, and deepening market worries about the lack of refining capacity.
The rise to a new nominal high forced the Organisation of the Petroleum Exporting Countries (OPEC) to consider a new increase in its output ceiling, less than a week after it increased production by 500,000 barrels a day to 28m barrels a day. A decision could be made as early as next week.
"We could see prices rise up to $65 [a barrel] if the [Norwegian] strike goes ahead," said Deborah White, senior economist energy at Societe Generale in Paris.
The oil price has risen about $4 a barrel, or 7 per cent, since the OPEC meeting when oil ministers put the blame for high oil prices on constraints in the refinery sector.
Energy analysts interpreted OPEC's comments to mean that the cartel was unable to reduce oil prices because even if it increased supply, refineries would still have problems meeting demand. OPEC officials have acknowledged that their strategy could have backfired.
"With no obvious supply-side constraint on oil price rises, only a collapse in demand growth can offer the necessary downward pressure," said the Centre for Global Energy Studies, the energy research group.
Should prices rise above $60 a barrel, a key technical level energy analysis predict the high price may still not slow demand or curb economic growth.
"The market is targetting higher and higher prices until we see a demand or supply response," said Adam Siemiski, chief energy economist at Deutsche Bank in New York.
"We are in a new trading range of $55 to $65 [a barrel] instead of $45 to $55," said Roger Diwan, managing director of PFC Energy, the Washington-based consultants, Benchmark US crude futures hit a high of $59.23 a barrel on Monday and are priced to remain above $60 from September to April amid concerns that the supply and demand balance will be tight over the winter period when consumption is at a peak. The futures contract for August delivery -- the most heavily traded on Monday -- hit $60.
Oil demand is expected to rise by 1.8 million barrels a day this year.
Financial Times -- 20 June 2005
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Keith Hudson, Bath, England, <www.evolutionary-economics.org>
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