Opinion
- Editorial- Commentary
Gwynne
Dyer: Oil:
$100 a barrel - or $200?
Nine of the last ten serious downturns in the
world economy followed a spike in the price of
oil, and we are heading for another spike, with
oil back up near the peak of $78.40 a gallon that
it reached almost exactly a year ago. A record
number of options contracts are now being sold
that entitled customers to buy oil in the future
at $100 a barrel. That tells you where the inside
players think the price of oil is heading, since
those options will only be of value if the price
were actually above $100 a barrel.
The spike at $78.40 in July, 2006 didn't cause
a recession, so why should this one? Indeed, why
would even $100 a barrel cause a global economic
crisis, given that one hundred US dollars today
is only worth about the same in most other currencies
as $78.40 was a year ago?
Oil sales are almost all denominated in US dollars,
which are worth almost a third less in euros, pounds
or yen than they were two years ago, so the countries
of the Organisation of Petroleum Exporting Countries
(OPEC), are not rolling in sudden wealth. The oil
exporters spend most of their income in other currencies,
so from their point of view the recent surge in
the oil price only restores the purchasing power
that they lost over the past two years due to the
US dollar's slide.
More importantly, most of the big importers of
oil in the industrialised world are not really
paying much more for oil than they were two years
ago. The rising dollar price has been largely cancelled
out by the fall in the value of the dollar, so
it's not really busting their budgets.
American consumers are feeling victimised, but
they get little sympathy in the Middle Eastern
countries that dominate OPEC, as most of these
governments believe that President Bush's invasion
of Iraq has made their neighbourhood a far more
dangerous place. OPEC is not going to pump more
oil out of gratitude for Mr Bush's policies.
What is really significant about the current surge
in the price of oil is that it has not been driven
by some apparently apocalyptic crisis like the
Arab-Israeli war of 1973 or the Iranian revolution.
(Neither event was actually all that apocalyptic,
in retrospect, but the markets don't do long-term
perspective.) We have got three-quarters of the
way to $100 a barrel without a crisis, driven simply
by stagnant production and soaring demand in the
big Asian economies. We could get the rest of the
way on a rumour and the price rise would not necessarily
stop there.
The truly significant change in the situation
is the stagnation of supply, not the rise in demand.
New oil-fields are much smaller than discoveries
in the previous generation (the last really big
oil domain to be developed was the North Sea in
the 1970s), and they tend to be in much more remote
places.
The number of new deep-sea drilling rigs now under
construction is almost equal to the total number
that currently exist in the world (seventy). When
you have to look for new oil at depths of over
1,500 metres (5,000 ft) under the sea, or coax
it out of the tar-sands of northern Alberta by
equally expensive techniques, the era of plentiful
cheap oil is definitely over.
OPEC
is squeezing supply a bit to keep the price high,
but its members are pumping close to capacity
and only Saudi Arabia is putting in major new production
capability. Non-OPEC oil output is predicted to
stay flat for the next five years. It may not really
be "peak oil'' yet, but at the least we are
seeing a lot of phenomena that mimic that time.
If the American mortgage crisis does not tumble
the global economy into a recession, Asian demand
will go on growing until the oil price does it.
At $100 a barrel if we're lucky - or via a detour
through $200 a barrel if Dick Cheney decides to
attack Iran.
Gwynne Dyer is a London-based independent journalist
whose articles are published in 45 countries. Petroleumworld
not necessarily share these views.
Editor's
Note: This article was first publish in Trinidad
Express, Wednesday, August 1st 2007. Petroleumworld
reprint this article in the interest of our readers.
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Petroleumworld
08/08/07
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