OIL - $200 A BARREL

Many analysts are already speculating that it is not a case of IF oil will reach $200 a barrel, moreover when, and when it does, what political and economic pressures will push it through the $200 barrier.

1. So when will it likely happen?
2. How high could it go?
3. What will it mean to the average person?

In real terms, Oil is already more expensive than it was during the 1973 crisis. At that point, oil rose from $3 to $12 per barrel. However in 2008 terms that is only around $45-$50. The current price is hovering at the $125-135 mark. Those within the industry believe $135 is undercutting the market and that the true price is nearer to $180.

We spoke to Frank Davies, a 35 year veteran of the Oil industry and he told us the following…be warned, it makes for scary reading.

Frank, what do you believe are the major drivers in the current oil price rise?

“It has to do with a mix of supply, demand and politics. With unpredecdented demand (82 million barrels per day - rising to 88m by the end of 2008), the continuing growth of China & India, delivery problems with Brazil’s Tupi field and a delay in the start date at Saudi’s new 500,000 barrel a day Khursaniyah oilfield, the oil industry simply cannot keep up with the insatiable demand”.

Will the oil simply run out, or will we find new discoveries that help lower the price?

“We are already at Peak Oil, which is when the volume of consumption cannot be replaced with new discoveries”.

Davies says that there are currently 68 mega projects ongoing globally. These will raise an extra 12.5 million barrels by the end of this decade, enough to replace production declines elsewhere, but not enough to meet the runaway demand. Oil producers are working flat out and have no way of increasing this even if the oil was there to be pumped out.

Of course the supply and demand side of things are the simpler issue. The bigger picture is the Geo-political spin exerted by producers on one hand and the USA, China and other big consumers on the other.

After it was badly bitten in 1973, the USA was clearly never going to be held to ransom again.

1. Ask yourself the real reason why the USA invaded Iraq. Whilst official estimates say Iraq is only capable of producing 450,000 barrels per day, it is common knowledge within the oil industry that 2,000,000 barrels per day head directly to the US eastern Seaboard without passing go.
2. Query as to why they occupy western Afghanistan (read Lutz Kleveman’s - The New Great Game). Is it perhaps because they have built a safeharbour for a pipeline of Caspian natural gas to a port in the Arabian Sea?
3. Wonder why they keep Musharraf in power?
4. Why Turkmenbashi died suddenly in mysterious circumstances?

All this extra oil money will make a nice little earner for George and the gang when they move back into Oil industry consultancy jobs in January 2009.

To conclude, it is not IF but WHEN….certainly by 2010, earlier if World events have their say.

The principal impacts to the average person and the global economy are staggering.

• Petrol, light and heating costs will all soar beyond current comprehension.
• Distribution prices will raise the cost of EVERYTHING else.
• The transport industry will be under huge pressure as logistics companies collapse.
• Airlines will simply buckle and fold under the pressure, leading to less travel and a tightening in tourism. This will cause even greater issues in countries heavily reliant on the travel and tourism industry.
• The plastics, clothing, chemicals and fertiliser industries will all be hit hard too.

All this will increase inflation and make further cuts in interest rates less likely, shortening the money supply and affecting everything from mortgages to every other concievable industry. The upshot is a return to locally produced goods and services and a reduction in globalisation. Smaller commutes….perhaps the return of the steam engine!

Of course science and technology will help alleviate this and find alternatives, but not in the short term. If you work in the oil, gas or steel industries…sit back and enjoy the ride as the $$$’s roll in, if not, stay at home!

 Thanks Frank