Well, anyone reading the latest headlines will have realised by now that the price of oil, and hence petrol, is zooming higher, following the latest violence in the Middle East, in this case, the attacks on western oil workers in Saudi Arabia over the weekend. The price of Brent crude passed through the $42 per barrel level by the time I had switched off my price feeds in my City offices, and for all I can guess, it could go higher still.
In the near term, all this is bound to trigger a number of responses from politicians and certain quarters of the commentariat. We need a “Integrated Energy Strategy”, drastic cuts to petrol taxes, etc, etc. (It has already started, judging by the stuff beamed into the television channels which I can watch while burning off some decidedly non-oil calories in the gym).
Well, it is good to know that that the chaotic and unplanned world we know and love as entrepreneurial capitalism is already cranking out possible solutions to present and future energy needs, whether it involves biomass, solar energy, hydrogen fuel cells, and other technologies. The venture capital industry, still recovering from the fading of the dotcom boom, may gain a new life from energy projects of the sort sketched out in Wired magazine. Longer term, things such as nanotechnology and continuing developments in materials sciences could help us make lighter, and hence much more energy-efficient cars and better insulated homes and workplaces.
All to the good. The prospect of entrepreneurial solutions would be even brighter were it not for the current Western angst about nuclear fission and fusion power, given that it may be possible in future to build nuclear plants at much cheaper cost than at present and perhaps deal far more effectively with some of the waste problems that have proven so ticklish in the past (side observation – there are obvious security issues to do with nuclear waste in the current geo-political situation).
Overall, however, it would be well to remember – not that readers need reminding, surely – that a high price for X may be a serious bug for some, but a raging opportunity for others. I’d wager that a lot of the calmer economists and analysts out there are poring over the possibilities that exist in the energy sector and related R&D. We could be in for a rough economic ride, but surely, if the price of petrol keeps rising, the market surely offers a better bet for figuring out some kind of solutions that anything we are likely to see from our political masters.
And at the risk of pulling the chains of some of this blog’s most loyal readers, it may also mean sales of SUVs will decline and folk, not just in the United States, will have to turn to smaller, and in my ‘umble opinion, aesthetically nicer forms of automobile instead. But fear not, the current situation won’t stop me blogging about the latest hot bit of stuff to come out of the Ferrari factory. Oh no.
One thing to keep in mind regarding the price of oil. While the supply of oil really hasn’t change much for the past 5 years, the demand and use of it has dramatically increase. Chief new consumer of oil on the world market is emergence market like China. So in short, Blame China for the price at the pump 🙂
And at the risk of pulling the chains of some of this blog’s most loyal readers, it may also mean sales of SUVs will decline and folk, not just in the United States, will have to turn to smaller, and in my ‘umble opinion, aesthetically nicer forms of automobile instead.
As regards the aesthetic quality of smaller autos, I am your wingman, by which I mean that I agree. There are plenty of small cars which excite my interest, approval, and lust, particularly on aesthetic grounds.
I just wish that I could stand to drive them. I stand 6 foot 3 inches tall, and most small cars become maddeningly uncomfortable to me after riding in them for 100 miles or so. I am ignorant of the driving conditions in Britain, but here in California, for example, I have a 500 mile trip up the main Pacific Coast north/south artery, Interstate 5, to visit my mother and grandfather.
Combine long distances with mere daily use, and I gravitate towards a vehicle which doesn’t make my extremities fall asleep on a daily basis, which doesn’t occasionally assault my head with the edge of the roof as I get in, which is a little easier to service (for those of us with large hands), and which is easy for older folk to board an disembark. I am not old, but I wouldn’t like making my 90 year old grandfather go through some of the contortions small cars require.
All of the above does not mean that I couldn’t get used to using a 2008 Itsibitsi Dinkydau, or somesuch, as my daily driver, if such a circumstance comes about, but there is a reason people like adequately sized autos, over and above aesthetic reasons.
I agree generally about your point of the trend in technology, a lot of exciting stuff looks to be boiling away where the public doesn’t see it.
We need more maxiscooters on the road. Comfort, weather protection and a few hundred CCs under one’s ass will put new life in old bones. Cheap to run, too.
Maxiscooters? Pah! A Quasar with a modern engine, maybe even a diesel, that would be the thing.
How many gallons on unleaded does one refine from a barrel of crude? Roughly?
Frankly, I’m for anything that will eventually allow the West (and sooner rather than later) to tell the Arabs to keep their oil and oh, by the way, do the physically impossible to themselves. So China is to blame for higher oil prices? Good. Let China deal with the Middle East. They’ll wish they were dealing with “crusaders” again.
For all that zooming the real price of oil is much lower than it was in the 70s, and it makes up a still smaller smaller portion of the inputs of developed economies. And there’s a greater variety of sources than there used to be. Higher cost supplies, such as some North Sea fields, are actually being mothballed.
So I’m finding it very hard to panic myself.
The prime reason for the rise in oil prices is not Iraq, but rather a falling dollar. Check out oil prices in Euros, oil has risen by less than 10% over the past year. What else can we expect with such low interest rates? If you had put your savings in gold, you’d be playing it cool with gas prices this summer.
The price of oil should be a dream come true for the chattering classes and their environmentally friendly credentials. But oh no, the pain needed to save our planet must come from intergovernmental regulation. Rising prices is “oh so” market fundamentalist
I have a prediction that in 5 years the price of oil will be rock bottom again. New investments combined with greater efficiency and alternative energy sources will be the result of the current panic. Ergo oil surplus on the way.
Jonathan L.
“I have a prediction that in 5 years the price of oil will be rock bottom again”
That’s a real problem. You could be right. And the general problem for libertarians is that many of the hands pulling levers in this game are not in the anglosphere. They don’t play to “our” rules.
OPEC has enough monopoly power to set prices within a very wide range. So wide that an investor in any energy source – new or old – can be looking at a risk too big to bear.
BigFire is absolutely right too. Chinese demand has wound up the market this time. Anyone prepared to take bets on long-term Chinese behaviour; or India, with or without Ghandis?
There’s a lot of muck to get through.
“Frankly, I’m for anything that will eventually allow the West (and sooner rather than later) to tell the Arabs to keep their oil …”
That is unrealistic dreaming. As much as one can sympathize with the feeling, you cannot ignore reality. We will be dependent on that oil for the next few decades, that’s a fact of life, of physics. As Mark Twain would say: an ungetarroundable fact.
“I have a prediction that in 5 years the price of oil will be rock bottom again.”
If you’re so smart, sell short some futures in oil and you’ll get rich. I wouldn’t bet on that. Prices generally go up and down too, but I don’t think “rock bottom” is right.
All the gizmos that enterpreneurs and inventors are now working on won’t drastically change the energy picture. Only two things could do that:
1. Massive use of nuclear energy. The impediment to that is mainly political, but that may change.
2. A scientific breakthrough of wich we still don’t know anything yet. (that is NOT some improvement in a known technology).
Jonathan, good article. I think high oil prices are structural, though, and not just a blip caused by the political situation in the Middle East, because:
(a) Hubbert’s Peak. Production and known or likely-to-be found exploitable reserves have, or will soon, peak. Game over – there’s a finite amount of the stuff and one day we will have burned all of it.
(b) Rising demand in China & India
(c) the f*cked up political situation in the ME isn’t a blip either
So I don’t see sustained low oil prices for any significant length of time ever again.
I also completely agree with you that there’s no need to panic, given enough ecnomic incentive someone will find/invent something else.
I *also* completely agree with you that SUVs (not to mention: all other American cars) are absolutely appalling things on aesthetic grounds. Although as I once found out, they do come in handy if you’re in New Mexico in April and it suddenly dumps three feet of snow overnight when you least expected it.
And if the Tories have any brains they can hammer the poo out of Blair and Brown for keeping petrol prices so high thanks to their criminal taxes on the substance. This is, of course, one aspect that government has a great deal of control over. I believe 53p of every litre of petrol is tax.
Thanks for the feedback. I agree with folk above who have cited factors other than the ME violence as factors. In addition to China’s oil-hungry tendencies, which are unlikely to fade soon, you have a relatively under-invested US/European oil refinery capacity, hobbled by planning and regulatory controls; a relatively tight inventory, and upswing in the global economy. The dollar issue is also pertinent.
Hard to believe that 5 years ago, the Saudis and the rest were bleating about oil at under 10 bucks a barrel. How times change.
For once, I actually think that petrol taxes are a good idea. From the libertarian point of view, of course, get rid of them, but that’s a national matter. Internationally, we have to consider security issues. Were I chancellor, I’d have duties on oil just so that I could lower them in response to any rise from OPEC, thereby destroying the despotic Saud’s ability to blackmail our free nation. If only Gordon Brown ever thought like that.
http://www.planetf1.com/news/story_15864.shtml
Britain and car related in words of Sir Frank Williams
“Absolutely. And you can say England’s fucked as well – you can put that on record, too.”
“But, in the UK, it’s impossible. You know, planning permission, all that. Don’t get me on the subject of the way England is governed today. We’ll be here all day…”
If you’re so smart, sell short some futures in oil and you’ll get rich. I wouldn’t bet on that. Prices generally go up and down too, but I don’t think “rock bottom” is right.
Does anyone know where I can buy 5 year oil futures???
I don’t mind SUVs nor their look. But you need to see them in their proper context. European cities were definitely not made for those things.
This being said, I have been partial to German cars for years. I will confess a willingness to support the German welfare state, if the token of my gift has a BMW logo on it. Sigh.
Dear Sir
We are interested to sell the following metals on FOB Mogadishu/Somali :
A- Copper B- Zinc and C- Brass
Would appreciate to show interest of buying.
Best regards,
Abdirahman