The pace of global oil demand growth should increase next year as rising consumption in emerging markets outweighs declines in developed nations hard hit by the high fuel costs and mounting economic problems. The barrel of crude which sold for $65 in 2007 might soon cost $200.
With such astronomical increase coming on top of a credit crunch, economists are talking seriously about the prospect of world recession and, even the worse, stagflation – the lethal combination of inflation and economic stagnation last seen in the 1970’s and early 1980’s.
We are told it is all due to a world shortage cause by soaring demand for oil in China and India, and that we can expect record prices to continue for eight years.
But is this really the case? Nowhere in the world are people queuing at petrol pumps; there are no power blackouts and no idle tankers are waiting in the Gulf for oil.
On the contrary, oil storage tanks across the world are full, super tankers are queuing at ports to unload and no major oil field is closed. Across the world, 86million barrels of oil are produced every day which at the moment is sufficient, not least because consumption in America – which burns a quarter of the world’s supply every day – is actually declining.
Alarmists also say that the world’s oil supplies have passed their ‘peak’, that the world has consumed half of all its oil and that the remaining 1trillion barrels will be gone by 2025.
This is quite simply tosh. BP’s experts and others insist that at least 4trillion barrels of oil are ready to be extracted and there are certainly many more trillions to find, not least in the Arctic and across the Atlantic.
No one it seems is willing to proclaim-the truth: there is no oil shortage. The fact is that oil is an artificially high price because of a combination of factors.
First there is the greed of the oil traders, bankers and speculators in the world’s financial centres who are pocketing billions.
Then there is the oil-producing countries whose economies profit massively from artificially keeping the oil price high.
And next there are the scare stories – from hurricanes heading for oil rigs in the Gulf of Mexico, power failures in Iraq or an oil pipeline being blown up in Nigeria – that these two groups exploit together in an unholy alliance to push the prices up.
There is no question that speculators – employed by Wall Street’s hedge funds, pension funds and banks, have used the scare stories to drive up prices.
Producers have learnt the lessons of history. They know only two well that it was Britain’s North Sea oil that destroyed OPEC’s first cartel during the 1980’s; and that, in 1998, their economies were ruined when prices plunged to $8 a barrel after OPEC responded to the West’s demand for increased production.
Admittedly, circumstances have changed since then. For the first time, China and India are aggressively competing for oil from the areas which traditionally supplied the U.S. and Europe. Meanwhile, oil consumption in the newly enriched oil-producing states themselves is soaring as their populations explode.
But it would be wrong of those in the West to despair. Firstly, after inflation and the weak dollar are taken into account, oil is only marginally more expensive than during another oil crisis in the 1980’s. Back then, the bubble eventually burst and prices collapsed.
Secondly, if countries quickly commissioned alternatives including nuclear power, renewable energy and environmentally acceptable coal-fired power stations, the oil producers would become terrified that their source of income was endangered.
Remember two things: all price bubbles burst, and there are still vast untapped oil fields which will supply the world’s needs for centuries to come.