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Time to worry about oil?

Stephanie Flanders | 14:01 UK time, Tuesday, 8 March 2011

Until recently, the received wisdom in the city was (a) that the steep rise in the oil price would be temporary, and (b) that it would only cause serious problems if it went to $150 a barrel. At least one of those two beliefs is now being tested. Possibly both.

After a brief period of treading water, the price of oil lurched up again yesterday, with Brent crude pushing back up toward the $120 mark. The last thing the Opec countries want is a market panic. That's why today you see talk of Saudi Arabia, Kuwait, the UAE and Nigeria all raising their production. But now the world is officially worried about the balance between oil demand and supply, I wonder how much long-term reassurance this can offer.

Consider, first, the question of how long the oil spike will last. I was struck by the Bank of England deputy governor, Charlie Bean's blunt answer to this in a speech at the end of last week:

"the bottom line is that while agricultural prices may fall back a little this year, oil (and also metals) prices are more likely to remain elevated. And there must be a risk that continued turmoil in the Middle East and North Africa results in a substantial oil price spike, present Opec spare capacity notwithstanding."

This chart of the oil price (below) over the past year or two shows how prices have leapt up in response to events in the Middle East. But you can also see how the oil price had previously been marching upwards, with no help from Colonel Gaddafy or anyone else.

Most economists were fairly relaxed about that earlier rise, because it was linked to rising demand from the emerging market economies, not disruptions in supply. But, as The Economist points out in its latest issue, a look back at history finds plenty of occasions when large increases in the oil price have been followed by recessions, when the root cause of the price spike was rising demand. All you need is for rising demand to collide with unresponsive supply.

The gap that's opened up between the US and global benchmark price of oil (WTI and Brent crude) shows how different supply conditions can have large consequences for the price. Prices are lower in the US because America has greater refining capacity - and it's recently tumbled on a lot of new supplies of natural gas, which US producers find hard to export.

Libya accounts for only about 1.5% of global production, or just over 1.5 million barrels per day. Reports suggest that production is now running at about a half or a third of that level. Somehow this has added nearly $20 to the cost of a barrel of oil.

Does the world have alternative sources to turn to, if Libyan production shuts down altogether - and/or the crisis hits production elsewhere? For decades the answer to the spare capacity question has always been Saudi Arabia. As long as supply was not disrupted there, the thinking was that everything would probably be OK.

As I said at the start, Saudi officials are doing everything they can to strengthen this belief. They have no interest in people losing confidence in the scale of their reserves. But there are plenty of long-time sceptics out there, who say the Saudis have been overstating how much oil they have left - and say now they're exaggerating their spare capacity as well. One Washington insider told me yesterday: "we're clear that the Saudi ability to make up for more than Libyan disruption is non-existent." Those doubts are helping to push up the price. No wonder they're rallying other Opec troops for the front page of today's FT.

Assume that roughly $120 per barrel oil is here to stay, with a strong chance that it will rise further. What does that mean for the global recovery? The answer is that no-one can know for sure.

Optimists point out that, historically, oil prices need to double in a year to cause serious bother. That's how you get that $150 threshold I mentioned at the start. Any number below $150, supposedly, the world is OK. Another point in our favour is that we are at the start of the economic cycle this time. Previously, higher oil prices have tended to push the world into recession when interest rates have been rising for a while and the recovery is fairly mature.

One estimate, from Fathom Consulting, suggests that a permanent 10% rise in the price of oil in the first three months of 2011 would not have much effect on global growth this year, but take about 0.2% off the growth rate next year. That's not nothing, but it's manageable. Whereas, in their model, $150 per barrel oil would cut growth next year by fully 1%. But as the authors admit, these things are rarely so clear-cut. And it matters a great deal where you are starting from.

Look around the world today, you see emerging market economies with an inflation problem, and rich countries who mostly have a growth problem. The worrying thing about an oil price hike is that makes both problems worse. It's especially worrying for the UK, which is in the unique position of battling slow growth and rising inflation.

That is why the past five global recessions have all been preceded by a sharp rise in the price of oil. They not only hit growth, they make it harder for policy makers to respond. Oil is the ultimate wild card for the global economy - and it's been a while since the UK was dealt a good hand.

Comments

Page 1 of 3

  • Comment number 1.

    Slightly off-topic, but why does the UK economy *have* to grow every single year? It's larger than it was fiveyears ago (even on a per-person basis), and things seemed pretty good in 2006.

  • Comment number 2.

    Stephanie,

    You state that price s rise due to increased demand. Where is the corresponding graph to indicate demand (presumably deliveries to refineries) that we can compare to the price curve?

    Where is your analysis of how the price change is related to a the Dollar's loss of value against other currencies? There should be a third graph for this.

    In essence the one graph you show is only sensationalist when seen in isolation. I read somewhere recently that as the £ has risen against the $ the price increase is less than we would think. Trouble is the pump price will be accepted on the basis of your Dollar graph, allowing a little bit of profiteering by the oil companies.

  • Comment number 3.

    It's not wise to worry about anything, in relation to which one can do nothing.

    Constructive thinking about how to address the possible consequences might be better.

  • Comment number 4.

    Today Americans use 25 barrels a year the Chineses 2 Barrels, 1975 the Americans 45 barrels the Chinese 1 Barrel 364 million Americans 1.3 Billion Chinese a small increase in Chinas capacity a huge increase in usage

  • Comment number 5.

    The one country where the oil price will be catastrophic is the UK as HM Treasury takes far too much duty and vat out of oil products and this duty and vat rises with the price magnifying the damage.

    The reason why the UK will be hit hard is the long term effects of running a society and business sector on long distance commuting. Even now people are paying bigger monthly petrol bills than mortgages just to get to and from work. We really HAVE to have a step change in policy that induces shorter commuting distances.

  • Comment number 6.

    Of course the increase in oil price also means extra tax revenues for the government which they are unlikely use to fund full 'compensation' for domestic consumers thus exacerbating the downward pressures on the economy. Furthermore the rise in fuel prices will add to inflation and it is difficult to believe the unions will not go a long way to mitigate the effects on their members cost of living. More pressure on interest rates and another step to the perfect economic storm. National unity coalition by September?

  • Comment number 7.

    #1. tom_p_willis wrote:

    "It's (the economy) larger than it was fiveyears ago"

    Tom - THEY FIDDLE THE FIGURES!!!! They use a spending base to look at output - this is OK as far as it goes, but has serious and obvious flaws. It does not distinguish spending from income and savings as distinct from that from borrowing. It takes no notice of the depletion of resources and national capital - in fact cut down all the trees and the GDP goes up even though you are left with a ruined country! Yet this is what 'economists' think is a good measure - it just shows how bad economics has become!

  • Comment number 8.

    I do not see an issue with the rising price of a diminishing resource. it would be more beneficial for 'world economists' and governments to wake up to the inevitable demise of oil.

    there is a clamouring for the British government to cut the fuel tax, but this, as with all taxes, is the price we have to pay for the society we live in.

    it is an inevitable fact that more and more people will be priced off the roads. best we stop pretending otherwise and start getting some walking exercise.

  • Comment number 9.

    Time to worry about oil?

    Good heavens no. No. Far too late for that. For years we've been overstating the size of reserves, ignoring the inevitable political cost of supporting corrupt and brutally repressive regimes, creating political vacuums in many places as a consequence, kicking the can down the road etc......

    In respect of Libya, I await an ad in Private Eye:

    Wanted: Spare aircraft carrier. Preferably with appropriate ground/air attack aircraft and trained crew (must be capable of handling a war situation and willing to die if necessary). Only genuine applicants please.

    Here's something I posted elsewhere a week or two back:

    I’m sure you’re aware of plenty of other details surrounding the 'oil' issue
    e.g.

    1. Replacement of the USD by the Gulf Common Currency for pricing oil – high oil prices and the chronic decline in USD value makes this more likely to occur sooner rather than later. Any thoughts about that? I think of it as the time when there’s no longer any road left to kick the can down.
    2. The overstating of Saudi oil reserves by possibly up to 40%. Hmmm.....I wonder what that might mean for oil prices? I don’t mean next week or next month, I’m thinking of, say, 3-5 years time when things ain’t lookin’ as rosy (!?!) as they are now.
    3. The impact of rising costs across the Middle East and elsewhere and the consequent unrest and instability, some of which we have recently observed. It’s just the start because as you no doubt appreciate, the chronic suppression of political opponents leaves a vacuum which can be readily filled by discontented rioters but not so easily filled by a stable, rational govt. Or even anything better than what went before.
    4. Food and oil. Remember a book called ‘Eating oil’ published way back in 1973? Food production, processing, distribution and packaging is wholly dependent on oil and oil-based products. And we think food prices are high now......
    5. What appears to me as an appalling lack of foresight in the oil-dependent West about these matters and their likely consequences. Maybe we should begin to prepare for change rather than using our ‘head in the desert sand’ strategy. Dithering, procrastination, hand wringing, wishful thinking, staring at our feet, humming a tune, whistling loudly in the dark etc etc.......none of these are of any use whatsoever.

    We're running out of road.......

  • Comment number 10.

    Companies eventually respond to rising petrol prices with regard to allowances for business mileage used.

    HMG seems to have no regard. Public sector workers I know are getting pretty racked off with this one... on top of redundancies, wage cuts (apply for your current job and get another with a £3,0000 pay cut) and no expenses rocketing.

  • Comment number 11.

    7. John_from_Hendon:

    "THEY FIDDLE THE FIGURES!!!!"

    Profoundly true.

    First, "growth" is flattered by the deduction of an inflation figure which is massively distorted by hedonics, substitution, geometric weighting and imputations. The use of normalised deflators (available from Shadowstats) strips out all and more of the supposed "growth" in the US economy since 2000.

    Second, economies have been "financialized" - an ever greater proportion of reported output is accounted for by the ultimately unproductive activity of simply moving money around.

    Third, reported growth ignores movements in the balance sheet. Very little UK "growth" during 2000-2008 would remain if the £4.6 trillion escalation in external debt were deducted from it.

  • Comment number 12.

    1. At 2:46pm on 08 Mar 2011, tom_p_willis wrote:
    Slightly off-topic, but why does the UK economy *have* to grow every single year? It's larger than it was fiveyears ago (even on a per-person basis), and things seemed pretty good in 2006.

    ----------------------------------------------------------------

    So that those in debt can repay capital + interest.

  • Comment number 13.

    Ms Flanders wrote: Time to worry about oil?

    When Brent crude was $116 a barrel; pump price was around 132p per litre
    Therefore assuming fuel duty and v.a.t. remain @ 58.95 & 20% respectively, then:

    Oil @ $100 a barrel pump price is 125p per litre
    Oil @ $200 a barrel pump price is 179p per litre
    Oil @ $300 a barrel pump price is 233p per litre
    Oil @ $400 a barrel pump price is 287p per litre
    Oil @ $500 a barrel pump price is 342p per litre

    If it hits £2.20 a litre that’s £10.01 per gallon, and it absolutely will make my eyes water.


  • Comment number 14.

    Stephanie,

    how about a little study to show what would bring down oil prices, and in fact other commoditiy prices?

    My guess here, positive real interest rates.

    And then, what is the trade-off, is there a trade-off between cheaper petrol and higher unemployment?

    And what else should be done to rein in speculative commodity markets?

    As a starting point, have a look at the graphs in this German economics blog. All farily self explanatory.

    [Unsuitable/Broken URL removed by Moderator]
    Thanks

  • Comment number 15.

    I think you need to add to the mix the impact of 'peak oil' - i.e. that simply the world's oil suppliers can't pump the remaining reserves out of the ground fast enough to meet world demand (c.88 million barrels a day and rising). Once that happens, or even once people THINK it's happened, (a) oil price will become much more volatile and generally much higher, and (b) ownership of the resource will matter at least as much as the ability to pay for it - hence deals Chinese have been doing for a number of years. What may be happening here - albeit hidden a bit by short term ups and downs - is a secular rise in oil price in response - hence price already high and rising at a time when most users in the world (the West) still in recession?

  • Comment number 16.

    Time to worry about oil speculation.
    The biggest threat to recovery is the price of oil, or so it's being said.
    If oil prices in particular, and commodities in general, keep rising, those trends will almost certainly constrain demand and consumer spending. However, one must remember the biggest factor re commodities in general was (and is) QE2, and the potential threat of a QE3.
    Back to oil:
    Though it seems like a distant memory now, think back to the 2008 presidential campaign when everyone was talking about the price of gas. John McCain and Hillary Clinton advocated a temporary repeal of the gas tax. Congress held hearings; the Senate actually came close to passing legislation to crack down on oil SPECULATION.
    Maybe you think that there's not a whole lot the president can do about the price of oil.
    Not true.
    WE MUST NOT OVERLOOK THE WALL STREET SPECULATOR.
    Commodities markets involve two kinds of participants
    (1) "end users" like farmers and airlines that use commodities markets as a form of insurance against future price fluctuations, and
    (2) speculators - hedge funds, investors, big banks that try to make money by BETTING ON PRICE FLUCTUATION.
    According to a study by the House Energy Committee’s Subcommittee on Oversight and Investigations, in 2000, hedgers, trucking companies, farmers, bakers, made up 63% of the crude oil futures markets. BUT by 2008, these proportions had flipped. Wow, now that's just too much gambling!
    So, doesn't it make sense to conclude that SPECULATORS are playing a major role? Is it not also safe to conclude that SPECULATION CAN PLAY HECK WITH SUPPLY AND DEMAND?
    How?
    Remember the housing market bubble. When a bunch of people think the price of a stock is going to go up, they rush to buy so they can get their piece of the profit. This is artificial demand, but it pushes the price upwards until guess what...
    POP GOES THE BUBBLE!
    It's not time to worry about oil; it's time to worry about the artificial interference in the price of oil (i.e. speculation). Speculation is creating volatility, aggravating the real demand. Most people, by now, realize that Wall Street can seriously distort supply & demand.
    One constraint is for the Commodities Futures Trading Commission to impose "position limits," essentially limits on the size of the BETS THAT SPECULATORS CAN MAKE. In fact, there is a law: The New Deal-era Commodities Exchange Act which gives the CFTC power to curb "excessive speculation," and of course the recently passede Dodd-Frank Bill which explicitly calls for the CFTC to promulgate position limits.
    Not surprisingly, the big Wall Street banks like Goldman Sachs don't want this. The 2 Republican members of the Commission don't want this. To his great credit & courage, CFTC Chairman Gary Gensler (a former Goldman banker) has tried to provide a leadership position in advocating limits; Democratic Commissioner Bart Chilton has been supportive.
    That leaves the deciding vote in the hand of Democratic Commissioner Michael Dunn, who's waffling. Dunn's term is up in June and the White House has begun vetting his replacement.
    Given the precariousness of the world economic recovery and upswinging gas prices, nominating a replacement enthusiastic about REIGNING IN EXCESSIVE speculation will be the most important decision made by the White House.
    Just watch what the White House does in replacing Michael Dunn.

  • Comment number 17.

    This is just a taste of the future.

    Growth vs finite resources.

    We need to wake up!

  • Comment number 18.

    There's only one solitary truth in all of this - it doesn't matter who says what, it's all a load of balls, frankly, isn't it?

    Price is going up, taxes are going up, the rich get richer while they get better at bleeding the (increasing in number) poor dry.

    We had a great little presentation at work today, summed up as "The guys at the top have all been promoted, all had pay rises, but their roles are unchanged. There's no further recruitment as there's no funds. We know it's a struggle and we're sorry..."

    Some wouldn't know the meaning of the word struggle if they were on fire several feet from a fire extinguisher.

  • Comment number 19.

    Stephanie,

    This article could have been written first in 1974, during the OPEC hike, in 1979 during the Iranian revolution and on at least ten other occasions since.

    What has the UK government done to shift our energy dependancy from oil since the first panic in 1974 started?

    Not a lot, except consume our own North Sea fields, which effectively put this big future problem on the back-burner for thirty years and then stitch up a few supply deals with politically unreliable regimes in other Continents, this also avoided dealing with our uncertain future for political expediency or just plain incompent government.

    All the UK political hot air about our future efficient and globally competitive industry is nonesense without the UK government increasing the intended output and accellerating the completion of the UK nuclear power programme.

    As thomasbarton #4 has suggested, the global impact of emerging nations, (with already aand projected significant manufacturung labour costs), has a potential to disturb the supply of global energy to a very serious disadvantage for the developed world but especially those nations with ambitions for manufacturing growth whilst having incompetent politicians.

    No greens please, unless you have a solution of how many windmills are needed to generate our total energy needs for 365/24/7 without exception.

  • Comment number 20.

    I have never understood how it is possible for example people with no connection to the refining and transport of oil to be able to trade in it not only trade but speculatively trade in it.

    You can add the other commodities too wheat why should it be possible for me to go and buy 1000 tons of wheat ??? it makes no sense, its just a money making scam.The current price of all commodities bear little reference to genuine supply and demand and are just being used as a plaything by the banking sector.

    Stopping this would have the effect of calming the price volatility we currently see.The banking lobby would of course ensure this will never happen.

  • Comment number 21.

    Not just the price of oil, is it?

    If we are looking at the enemies of enterprise and seeking to do away with them, then the taxation of transport must at no.1 or 2. The effective total tax rate on petrol and diesel is nigh on 70%.

    But the problem with taxing transport is that the tax works its way into all sorts of dark corners and increases other taxes without any subsidiary benefit. If the two MPs on the Beeb at noon today were anything to go by, the folk at Westminster (and the media, for that matter) do not have a clue as to what happens with transport taxes.

  • Comment number 22.

    Demand for oil is growing rapidly. Easy oil is largely gone and, although new reserves are to be found, they will be more expensive to produce, both in terms of actual cost and cost to the environment. Western governments have been slow to act on (or even take seriously) climate change - it's too long term a problem to concern the political cycle. The oil price is a short to medium term problem. It is vital that the UK and all oil dependent countries focus on cutting demand - that means saving energy and using alternatives. Simple measures, like the Lighter Later campaign, www.lighterlater.org are key to cutting demand and saving energy - and should be part of an overall energy saving strategy.

  • Comment number 23.

    The difference between the 1974 crisis and the current one is perhaps not simply oil but the level of the UK external debt. in 2008 Michael Saunders from CitiGroup calculated external debt was 400% of GDP, the highest in the G7 by some margin. In 2010 our external debt in USD was 8,981,000,000,000 - 410% of GDP. Although the US external debt is 6.6 times this, that only represents 95% of their GDP. A significant increase in oil price can only server to increase that external debt, and as Paul Krugman pointed out in his Nobel lecture in January last year this increases the risk of 3rd generation speculative attacks on currency.
    So be prepared Stirling goodbye folks!

  • Comment number 24.

    #19 Geoff Berry

    "No greens please, unless you have a solution of how many windmills are needed to generate our total energy needs for 365/24/7 without exception."


    I'm not really a green but I thought this comment was very simplistic. The points made earlier by various contributors re the increasing demand for scare resources make it, I would suggest, vital that we get our renewable energy supplies on line sooner rather than later. That's before those Chinese want 4 barrels a year each and that's without the Indians wanting more as well.

  • Comment number 25.

    John-from-Hendon, No. 5 makes a good point about the costs of commuting.

    Now there are those who may manage to do some work while commuting - most likely if they are fortunate enough to get a quiet spot on the train - but for the majority it's a prolonged, often frustrating dash that is only alleviated by a car radio or the serendipitous discovery of a vacant seat on the train. In 2009 a TUC study concluded that 269 million pounds worth of working time a day is lost to commuting. In the EU, the UK has the second longest average daily commute - and this amounts to almost a whole extra working day a week spent commuting.

    Clearly, so far as the commuters are concerned, this time is almost totally unproductive. It is most likely also unproductive in an additional way because tired and frustrated workers, too often late into work because of trouble on the roads or railway line, are more likely to be less productive and effective than those who have only had to nip round the corner to work.

    However, this has to be balanced with all the transport system work - buses, trains, service stations, vehicle production, services and transport network construction and maintenance - all this commuting supports.

    It does rather appear to be something of a paradox that we now have a situation where a large part of our daily economic activity is devoted to helping millions of people spend hours on the roads and railways not being economically productive. Add to this the estimation that there is a £20 billion annual cost to the UK of road congestion (at least according to Freshbusinessthinking.com)then, together with the seemingly inevitable pressure for fossil fuel price rises, the case for an economy based on shorter commuter journey distances would appear to be extremely sensible.

  • Comment number 26.

    The increase in external debt has indeed been dramatic:

    1996: £1415bn - 181% of GDP
    2000: £2252bn - 231% of GDP
    2008: £6247bn - 431% of GDP

    This is a clear case of 'living on tick'. As of mid-2010, UK external debt per capita was $144,000, far higher than the US ($45,000), Spain ($47,000) or Italy ($38,000). External debt has declined slightly since 2008, but still equates to £220,000 for every household in the UK. These numbers are surely unsustainable.

  • Comment number 27.

    Why not bring petrol into line with AVGas? Currently aviation fuel duty is 20.6ppl less than road fuel. Why - to provide the airline industry with a government subsidy. Reducing unleaded and diesel fuel would take 24.7ppl out of the petrol and diesel prices.

  • Comment number 28.

    I'm sorry to say that to me the whole mess smacks of stupidity.
    We have has YEARS to come up with cars that will run on fuels other than petrol and diesel, and as I understand it some good ideas have come about in the process, but you will never get away from the fact that no government seems to have the balls to stand tall and make a serious decision to go ahead and seriously start introducing the necessary steps to make these alternative fuels viable.
    It's obvious why... they are making an absolute fortune in taxes from the fuels in our cars which they constantly squander on waste in just about every government department going (local and national) and to make a serious change in where that tax is coming from is just too much like hard work.
    The nonsense about making cars greener makes me laugh frankly. I used to use LPG because it was exactly half the price of Petrol or Diesel, but recently the gap has been narrowing quicker than you can speak and so suddenly it isn't viable to think of getting a car converted anymore. LPG is certainly cleaner than either the alternatives, but all incentives to switch to LPG have just about been decimated.
    There is something else I don't understand... the last time Oil reached $120 a barrel, the price at the pumps wasn't anywhere near as much as it is now so how has the price got so much more out of kilter? Other than greed by both HM government and the oil companies I can't fathom an answer.

    I guess the answer is that until we start getting serious about Hydrogen powered vehicles and the like we will always be shafted by the oil producing countries that are holding us to ransom. The price of just about everything we eat and buy is about to rocket like you have never seen and we only have ourselves to blame for it.

  • Comment number 29.

    Two issues: UK fuel taxes/prices and Saudi oil production.

    On balance the high rate of UK taxes is probably slightly positive - it gives the government more leeway to cut duty if required than countries with low fuel taxes. It also means that the UK is slightly further down the very slow road of increasing fuel economy than other nations.

    However in the grand scheme of things fuel prices are ironically still two LOW for people to do much about it. For a brand new family or premium saloon, fuel only makes up perhaps 20-30% of running costs over 3-4 years. This means that millions of people still buy relatively inefficient new cars because they can easily afford to. It also means that people run old inefficient cars because it is far cheaper than buying a new efficient one.

    An example - old small car (value c.£4000), runs at 35mpg. New small car (value c.£10,000) runs at 70mpg. Annual mileage 14,000 miles.
    Fuel prices would need to be £10 per gallon before it would make sense (over a 3 year period) for the owner to switch to the more efficient car!

    It's fairly obvious that market forces are not very efficient at producing a quick more towards fuel efficiency due to the the nature of the car market. The government should really have done move, earlier to 'nudge' the market in the right direction. It also needs to keep moving in that direction with perhaps a VAT exemption for the most efficient cars?

    Finally.
    As regards Saudi oil production, they have spent around $100billion on major infrastructure in recent years that IN THEORY can pump 12.5mbpd, up from c.8mbpd currently. That is of course assuming 100% utilisation (i.e. nothing breaks or need maintenance). It also isn't tested and isn't without risk of long term damage. Pumping oil out too quickly (achieved by pumping water in) can basically screw up the oil field and result in getting less oil out in the long term.

    This means that the Saudis do not want to crank the pumps up and it is possible it will not go smoothly if they do. If it did mess up future extraction of one of their biggest oil fields then actions giving a $20 cut in oil prices for the next two years might result in $20 added to the price for the following decade.

  • Comment number 30.

    26. At 5:42pm on 08 Mar 2011, Friendlycard wrote:
    The increase in external debt has indeed been dramatic:
    1996: £1415bn - 181% of GDP
    2000: £2252bn - 231% of GDP
    2008: £6247bn - 431% of GDP
    This is a clear case of 'living on tick'


    Where do you think money or financial assets come from ?
    Tickland is the currency issuer. the government, the deficit, the public debt.

    If you don't believe that non-government has the right to net save financial assets then, by all means. call for your prudence, your cuts, your austerity but be careful what you wish for. A Govt surplus means a non-government deficit and if non-government doesn't fancy more private debt then the economy will tank along with employment.

  • Comment number 31.

    No 28: - "we will always be shafted by the oil producing countries that are holding us to ransom."

    You need to get an understanding of where the cost in fuel is. Of the 135p that I am currently paying for diesel, the government is taking 58.95 in duty and 22.5p in VAT. Government Total Take per litre = 81.85p
    Oil Industry / Distribution / Retailer Total Take per litre = 53.55p so tell me who is doing the shafting?????

  • Comment number 32.

    #20
    Maybe I'm missing your point, but why is trading in Wheat electronically any different from me setting up a retail shop to sell (for example) furniture?

    I don't have anything to do with the manufacture or transport of either.

    I'm simply taking an entrepreneurial view that I can source something for a lower price than for what I can sell it on. In both instances it may well make money, but it also may well lose me money if I pay too much or mis judge future demand.

    Are you suggesting compulsory vertical rationalisation of all businesses whereby only manufacturers can sell their products?

  • Comment number 33.

    Similar to #1 I wonder how much this graph shows the rise of oil vs. the fall of the dollar.

  • Comment number 34.

    In the late 1970's when studying economics, it was accpted wisdom that we would face an "energy gap" from 2010 to 2040 where fossil fuels had started to run out and the development of alternatives wasn't sufficiently up to speed.

    Of course no one knew then of all of the additional reserves of fossil fuel yet to be found, enhanced extraction techniques, leaps forward in fuel efficiency and technology etc etc.

    In other words, haven't we all been here before?

  • Comment number 35.

    I think there are some good points to the commuting issue.
    Working from home is going to be a big deal in the future especially with the latest technology enabling video calls etc. People can do distance learning so why not distance working? Not only will people not be on the road sat in traffic using vital oil and polluting the environment there will be less wear and tear on our transport networks therefore reducing maintenence costs and people will have more flexibilty in their lives. There is no need whatsoever to work '9 to 5' it just causes what we call rush hour, overloading trains and buses and the roads. Flexible working hours would allow people to spend more time with their children as well.

    On a different point has anybody seen the speed of progress the car industry is making with producing electric and hybrid vehicles that are almost as efficient as petrol/diesel cars? Progress is pretty rapid I would say as few hybrid cars exisited even 5 years ago. The technology has existed for a while such as milkfloats if anybody remembers them. It has taken until now to realise that how much we need to change from using traditional oil based fuels.

    It would be interseting to know how Brazil is getting on as it produces the majority of its fuel domestically from bio ethanol. Something that companies in this country are investing heavily in as it is now the law that 5% of the petrol or diesel you put in your car must be renewable, this is to gradually increase over time to reduce our oil dependency. The government do not just sit wait for disaster to strike (banking being a possible exception!) despite what the majority of people think we are a very proactive country and are lucky we have competent strong governments. Just look at the majority of African countries where the rule of law doesn't exist, visiting some of these places would help open peoples eyes and see how lucky we actually are.
    We can go out and crash our cars into pot holes and then claim from the council, alot of places do not even have tarmaced roads!

    So here is the plan;

    Electrify the whole of the rail network. Build new high speed rail lines to replace air travel. Build nuclear and renewable sources of electricity (as is already being done at faster rate than most countries) to power them. Build electric charge points accross the country in car parks etc, this gives people a reason to move from petrol/diesel to elctric. Doing all this will also provide jobs for thousands of people, reduce our dependecy on oil, be better for the environment and increase economic growth that has real value.

    In the short term the Government should set a cap on petrol/diesel prices at say £2 per litre. At this price it still is not expensive! How much for a bottle of water again? The VAT on fuel should be abolished and replaced with a single fuel tax that gets adjusted to keep the price of fuel at £2 and it would possibly turn in to a fuel subsidy but the price could be gradually moved up by however many pence per year, but it will provide stability. With the current economic climate stability is key!

    Sorry for the rambling.

    Regards

  • Comment number 36.

    It always looks impressive to reference The Economist - although rather less than straightforward to omit to mention that in the late 1990´s the Economist devoted substantially an entire issue to an explanation as to why the oil price would never again breach $20/bbl.

    Why not mention that peak oil production actually ocurred in 2006 (OK so new discoveries may enable this peak to be breached, but that is mere speculation - something that I would have thought to be right up the BBC´s street).

    No-one in their right mind thinks that the Saudi´s have told the truth with regard to their reserves. Take a look at how OPEC quotas are derived and ask if there is any incentive for member states to "over egg the pudding" with regard to reserves?

    Take a look at the rate of production decline from large mature fields - around 6% to 7% annually. Take as an example the Cantarell field in Mexico, by some measures the second biggest field in the world. Look at the impact of its decline on aggregate Mexican production decline.

    Now ask where new oil can be found - surely you must remember BP in the GUlf of Mexico - It was only last year. Ask whether this is likely to be cheaper or more expensive than oil that basically seeps out of the ground.

    No amount of blaming tin pot loonies who you have so assdiously supported for so many years will change the fundamental facts on the ground.

    Of course the impact of these facts is likely to be magnified by all the crazy money printing schemes that have 2 main effects (i) It tips poor people into starvation, and starving people lose their fear of bullets and guns and (ii) the rich guys sitting on top of the oil want ever more $ bills for their oil because they are not so stupid as to fail to understand what is happening to the value of the $.

    Oh what a tangled web we weave when at first we practice to deceive.

  • Comment number 37.

    Some of us have been worried about the price of oil for a couple of years now ... and have been writing on here and other blogs saying exactly that.

    Is a looming UK oil crisis a new phenomena? ... I'm sure that most people are aware that a shortage of fuel/oil/gas is going to be big problem in the UK in the near future ... it is just the laid back attitude of our UK govts' and the realetd lack of foresight and planning that will make the increasingly more acute shortage(s) much more painful and damaging to all aspects of the UK.

    Another UK bungled and botched issue that will clearly have a major and larger and larger impact on the performance of the UK economy going forward and related issues like e.g. public and private transport.

  • Comment number 38.

    #30 EconomicsStudent

    "Where do you think money or financial assets come from ?
    Tickland is the currency issuer. the government, the deficit, the public debt.

    If you don't believe that non-government has the right to net save financial assets then, by all means. call for your prudence, your cuts, your austerity but be careful what you wish for. A Govt surplus means a non-government deficit and if non-government doesn't fancy more private debt then the economy will tank along with employment."

    Could we have this in English please? Or is that why you are still a student?

  • Comment number 39.

    #34 backinwhite

    No, it looks like we've finally arrived there and they weren't that far out were they?

  • Comment number 40.

    The point I was trying to make (rather clumsily) about external debt and rising oil prices is simply that increases in il prices make it more likely that there will be speculative attacks on currencies that are considered susceptible - look at George Soros and the ERM crisis. Historically the two great underlying commodities that support the capitalist system are gold and land (the US dollar is still pinned against the price of gold); apart from recent dalliances with complex financial instruments oil has been the only addition to that pairing since the days of the Roman empire. Money is of course only an intermediary, a stand-in for gold, land - or oil. But so much of the value of our money is supported by sovereign wealth funds belonging to countries that are not entirely friendly to us - China is the obvious example, and it's pure speculation but I'd bet a small amount of (something!) that Libya would be another. I also remember speculation concerning 'the energy gap' - so it seems this situation has the possibility of going badly wrong on very many levels.

  • Comment number 41.

    2. At 3:10pm on 08 Mar 2011, Kit Green wrote:
    Stephanie,

    You state that price s rise due to increased demand. Where is the corresponding graph to indicate demand (presumably deliveries to refineries) that we can compare to the price curve?

    Kit, demand is nearly impossible to show - the deliveries to refineries shows only where the current equilibrium between supply and demand. Demand for commodities such as oil is shown in the price which bidders are prepared to pay for oil - therefore, if the price of oil is rising, it means that companies are bidding higher and higher for shipments of Brent Crude, which relates to consumer expectations that the price may go higher still in the weeks to come.

  • Comment number 42.

    #35 Aquadave99,

    "Working from home is going to be a big deal in the future especially with the latest technology enabling video calls etc. People can do distance learning so why not distance working?"

    This is a classic example of the limited thinking that pervades our decision making. Now YOU might do the kind of work that technology would enable you to undertake from home. However, the vast majority of workers are not so fortunate.

    You then have to think about the buildings that we call houses. For cost pruposes we have built smaller and smaller properties that are majorly open-plan. Imagine trying to hold a tele-conference with a shouting toddler or screaming baby only feet away!

    As for Brazil, just look at the desruction of the rain forrest to make way for those bio-fuels.

    Whilst I would welcome significant investment in a diverse power generation programme I really cannot see the point in bulding any more HSRs. When are we going to learn that 30 minutes on a journey time is not really significant?

  • Comment number 43.

    #42 Foredeckdave
    I didn't say my thinking was perfect and I don't think it is, hence the idea of posting on a blog to provoke thought and have a grown up conversation.
    Anyway I am not a politician or civil servant thinking up policy. I am merely a Civil Engineer who cannot possibly work from home and require a car to get to sites around the country and I don't have kids so maybe I am being hypocritical!

    "This is a classic example of the limited thinking that pervades our decision making"
    This is how I feel about your stance on High Speed Rail. It is not simply about journey times (which someone pointed out earlier are very important as they are lost productivity). If you look at Greengauge and other such reports there is more to it but I will let you do the research.

    Point taken with Brazil but over recent years many large American (and probably European) companies have been buying up vast swathes of land in Africa (especially Sudan) that is to be used for growing crops not just for food but for use in renewable fuels. We dont have to cut down the rainforest and growing crops is carbon negative at best and neutral at worst therefore reducing CO2 emissions.

  • Comment number 44.

    #40 OETKB - You are flat out wrong. THe US$ is NOT pinned to the price of gold or anything else. The last linkage to gold was severed by Nixon in 1971.

    #41 sovolich Are you for real? Demand for oil is very accurately measured by both governments and supra national agencies. It is not hard. The price of oil is seldom set by supply/demand balances - When is the last time the UK saw any shortage of physical availability? Maybe you should take a look at things like NYMEX, SIMEX and the IPE. If you are really interested you could check out the thoughts of a former Executive Director of the IPE and his take on the BP/Goldman JV.

  • Comment number 45.

    Having worked in the oil & gas industry for years, there appears to me that someone is making a lot of money by giving false reports. Liby's oil output is only about 40% of Saudi Arabia's surplus production and they have offered to increase production. I am sure other countries are in a similar position to increase capacity.
    Also, when is this oil actually paid for, as I cannot understand why the prices at pumps goes up so quickly.

  • Comment number 46.

    Further to my last comment about fuel prices, will someone explain why in Qatar and Bahrain (Bahrain imports petrol) the price, with tax, is approximately 5 litres to the UK Pound. Surely the UK government should reduce the tax to keep the price at the pumps stable.

  • Comment number 47.

    Hello, everyone seems to miss the point that supply,demand is too tight.
    Very difficult and irresposible to increase supply (re: Global warming,peak oil) so No.1 world problem is to reduce demand so there is >5% less demand than supply. Here's how:
    1. Speed limits , say 60mph. On the A3 I'm still the slowest diver doing 55mph - incredible when petrol is at it's highest ever.
    2. Work at home : Companies should be penalised for non essential working in offices.
    3. Take train : Extra incentives for companies to get more people on the trains especially going to other sites.
    . Increase London's congestion charge to £20 per day.
    5. Increase road tax for 4by4's , new cars with ave less than 40mpg to £1K year.
    6. More drafting especially for lorries
    7. School runs , either start sharing more or walk,cycle,scoot. Maybe get on spot fines for only 1 kid in car coming into school.
    8. Flights - the big one, 2 non work flights each , year.Work flights limited to 10 per person. ie stops dreadful commuting from Europe to UK going back every weekend. Trouble is this needs to be implemented all over Europe otherwise firms just rellocate.
    If the demand isn't reduced,stabalised then inflation will be horrendous.
    The lights won't go out cos we've got lots of coal but food production,distribution will be the big crisis.

  • Comment number 48.

    It was time to worry about the price of oil twenty years ago. And the price is not the real problem it is the ability of supply to meet demand. That's when the price will start escalating dramatically. At which point governments will start securing assets by force (nakedly rather than through agreements with OPEC). One estimate I have read is 200USD a barrel at the point this is likely.

    http://www.chrismartenson.com/forum/why-peak-oil-will-never-lead-500bbl-crude-oil/38937

    Indeed that observor thinks it might be next year we reach that point.

    Of course there are shale deposits and less economic sources of oil but the real issue here is not the cost but the energy efficiency of removing oil. If you spend the same amount of energy extracting the energy worth of the oil then it is pointless extracting it.

    We should have been transferring to powering the economy from the national grid decades ago. And transferring away from oil fired power stations at the same time.

    And its not just oil, its plastics and other oil based products that will go up in price.

  • Comment number 49.

    Re windmill comments @19.

    UK annual electricity demand is around 380TWh. To meet this demand with wind turbines alone, energy storage capacity would be needed. Assuming the standard deviation of wind power output from the annual mean of 50% and a very pessimistic 30% efficiency for hydrogen based storage facilities you would need to around generate around 37% of extra energy to make up for when the wind doesn't blow. That would mean generating around 520 TWh in the first instance to supply the 380TWh we require, when we want it.

    Offshore wind turbines have a capacity factor of close to 1/3 therefore this would mean a base plate capacity of pretty close to 180GW. Assuming these were all 5MW turbines (which are being trialled) this would mean 36,000 of them (or 60,000 x 3MW turbines). This would occupy around 60,000 square km or half of UK territorial waters with a depth of less then 50m.

    However to put things in perspective, planned construction is about 2GW/year at present and even if that increased by a factor of 3, it would take nearly three decades to get anywhere close to completely replacing fossil fuels.

    As regards the energy storage needed to smooth out peaks and troughs a hydrogen cycle is a good option although not the only one. You would need a moderate number of large industrial scale thermochemical or electrolysis hydrogen production facilities co-located with either slightly-modified gas-fired power stations or hydrogen fuel cells in a closed loop cycle. These would be completely carbon neutral and would have both a similar capital cost and land requirement as the existing fossil fuelled power generation infrastructure that would be rendered redundant. The capital cost, although perhaps in the rough order of £100 billion would still be fairly small compared with perhaps £500 billion for all the wind turbines.

    Completely removing fossil fuels from electricity generation and transport is very, very achievable on a 30 year timescale. Quicker change is possible but probably is not really needed, would be highly disruptive and very reliant on being Government driven and funded.

  • Comment number 50.

    45. At 8:16pm on 08 Mar 2011, Chris wrote:

    Having worked in the oil & gas industry for years, there appears to me that someone is making a lot of money by giving false reports. Liby's oil output is only about 40% of Saudi Arabia's surplus production and they have offered to increase production. I am sure other countries are in a similar position to increase capacity.
    Also, when is this oil actually paid for, as I cannot understand why the prices at pumps goes up so quickly.

    ................

    Chris ... its just a supply chain racket ... we're all getting ripped off as end of line consumers after the vested interests all get their cut ... we're such an easy target and the main culprit is our UK govt

  • Comment number 51.

    The price of a barrel of oil and the price you pay at the pump is only loosely correlated because oil is priced in USD and Derv is priced in UKP.

    August 2008 Derv in the UK hit 135.9p/lt, the equivalent today is about 148.9p/lt taking inflation into account so Derv in real terms is cheaper today (@ 134.9p/lt) than 2.5 years ago. (which is why no fuel protests yet)

    The price of fuel drives fuel efficiency, if petrol was 25c per US gallon then we would all be driving 5.6lt V8s (they sound so cool, think Bullits' mustang), fuel has always been expensive in the UK which is why we had the Issigonis Mini.

    If you want to break out of the reliance on oil then the price of road fuel in the UK needs to be greater than 190.0p/lt, people will choose alternatives. (or vehicle manufacturers will drive 90mpg as standard)

    For those complaining that fuel duty is too high already, the money has already been allocated, cut fuel duty and raise vat (or any other tax).

    For those complaining about the commute, convince your boss to let you work more locally, find a job closer to home or let an unemployed city dweller have your job and you go on the dole for a while.
    (all those country folk/suburbians coming into our cities and taking our jobs)

    You all keep complaining about the price of oil, stop buying it

    You all keep complaining about banks ripping you off, stop banking with them

    You are the consumer in a consumer society, without you they are nothing.

    I've done all I can to replace the rip-off merchants taking me to the cleaners but whilst you lot keep paying the piper he will still keep playing.

    Just Stop.

    (only you have the power)

    Think! (to steal an ad from a large computer co.)

    Stop!




  • Comment number 52.

    Surely the comment that the UK is "the one country where the oil price will be catastrophic" is completely wrong? Since HM Treasury takes a large proportion of the pump price in tax, in fact if the crude oil element of the pump price goes up even by say 50% then the impact on the actual price paid by motorists is much less - say about 10-15%. The Chancellor has plenty of scope to not increase the amount taken in tax, should he choose to do so.

  • Comment number 53.

    Here comes the pain

  • Comment number 54.

    #50 nautonier - tbh I think the government is doing us a favour although I'm sure that's not their intention. Petrol at high prices has changed behaviour. I actually think the government is right to look at extending the rail network and if that revenue helps reach that end then it is being used productively. However, had they not pushed the goods supply chain onto the roads in the 80s and transferred coal fired stations to oil we might have been closer to the curve.

  • Comment number 55.

    Well... Lets not say that nobody saw this (peak oil) coming. It's been on the cards for 40 years.

    Lets also not say that the direct correlation between oil price and food inflation hasn't also been known about for a good 20 years as well. Oil is energy, any thing that takes energy to produce is going up in price and it's a long long time since agricultural work was back breaking.

    Y'all had better demand higher wages.

  • Comment number 56.

    52. At 8:34pm on 08 Mar 2011, Mark_Milton_Keynes wrote:
    Surely the comment that the UK is "the one country where the oil price will be catastrophic" is completely wrong? Since HM Treasury takes a large proportion of the pump price in tax, in fact if the crude oil element of the pump price goes up even by say 50% then the impact on the actual price paid by motorists is much less - say about 10-15%. The Chancellor has plenty of scope to not increase the amount taken in tax, should he choose to do so.

    -------------------------------------------------------------------------

    In my opinion that is exactly what he should and will do when he reveals his budget. Some sort of price/tax ratio to stabilise prices in the short term. Although I would recommend it not come in to force until say £2 per litre as we should all be encourage/forced off that addictive black gold. carrot and stick and all that jazz

  • Comment number 57.

    "50. At 8:29pm on 08 Mar 2011, nautonier wrote:
    45. At 8:16pm on 08 Mar 2011, Chris wrote:

    Having worked in the oil & gas industry for years, there appears to me that someone is making a lot of money by giving false reports. Liby's oil output is only about 40% of Saudi Arabia's surplus production and they have offered to increase production. I am sure other countries are in a similar position to increase capacity.
    Also, when is this oil actually paid for, as I cannot understand why the prices at pumps goes up so quickly.

    ................

    Chris ... its just a supply chain racket ... we're all getting ripped off as end of line consumers after the vested interests all get their cut ... we're such an easy target and the main culprit is our UK govt"

    So, you earn £100 and as a 40% tax payer get £59 - after tax/NI - off to the garage with your £59 to fill up of which approx. 70% is tax/duty. So, you are only paying about £18 for the stuff the rest is tax at a rate of 82% - ouch!! Hopefully you haven't bought fags as well.

    Someones got to pay for the deficit I suppose............

  • Comment number 58.

    Stephanie wrote:
    Until recently, the received wisdom in the city was (a) that the steep rise in the oil price would be temporary, and (b) that it would only cause serious problems if it went to $150 a barrel.

    .....

    a) it isn't temporary. Peak oil has been passed and the current crisis in the middle east will expose the Saudi's inflating their reserves.

    b) Well this Friday is Saudi's day of rage and the spivs are already speculating on $200 not $150.

    http://www.bloomberg.com/news/2011-03-07/saudi-arabia-s-day-of-rage-lures-record-bets-on-200-oil-chart-of-day.html

    If Saudi Arabia ends up like Libya then expect $200 as a minimum.

    One thing is certain, if oil keeps climbing then come June, when QE2 in the US is meant to end, Bernanke will fire up the printing presses again for QE3 exporting inflation all over the world.

    I'm predicting June for the next stock market collapse, and this time bail outs will not be an option.

  • Comment number 59.

    51. At 8:30pm on 08 Mar 2011, BobRocket wrote:

    "For those complaining that fuel duty is too high already, the money has already been allocated, cut fuel duty and raise vat (or any other tax)."

    Maybe if the government removed all the stealth taxation and introduced a more transparent regime (flat rate or equivalent) then the country would wake up and realise how much we are all paying towards running this country. In my opinion the state should be reduced to providing services of last resort.

    In addition to this, if the government decided to spend all OUR money in the UK, then fuel duty would not be required. Net contribution to the EU £57 billion, Foreign aid £8 billion. Remove these two expenses alone (not including NATO, WTO, IMF, UN etc.) and the government could not only remove fuel duty but could actually afford to subsidise it.

  • Comment number 60.

    Hi Guys and Gals,

    This isn't a new concept. Its just that we are hopeless at facing facts

    http://en.wikipedia.org/wiki/Thomas_malthus

    Thomas Robert Malthus wrote an Essay on the Principle of Population, first published in 1798!!

    I am beginning to wonder if the government has a policy of increasing unemployment hoping that demographic factors will bring it down again in time for the next election.

    Call me cynical if you like ;)

    Thames

  • Comment number 61.

    No, but as a repeat of 2008, it will be advisable to wait until the end of the year and then buy cheap gold.

    What we have here is a large amount of money wobbling around at the top end of the pole, with banks, funds, investors, corporate savings, etc. This money can't find its way into circulation because there's no demand for debt, and direct investment models are not up and running as they should be.

    So, from time to time, it gets invested in commodities and forms bubbles. This causes political unrest, oil price rises, food price rises, and sell offs of gold.

    In recognition of impending doom, the commodity price bubble pops and all the money goes back to the great wobbling top heavy container. Nothing is worth investing in, currencies devalue, private debt converts to public debt and gold prices keep up on rising.

    This is a blip, like 2008, and it will keep on happening until either war happens, or someone finds a solution to whole problem.

    If I hear anyone talk about recovery I will have to immediately dismiss them as a blinkered idiot.

  • Comment number 62.

    You must remember that the price of a barrel of oil can rise regardless of actual production. Big oil likes to "assume" potential reductions in supply and can raise the price without any actual loss in production. The same people who own the banks own the oil companies..not exactly the most open or honest people to deal with. When oil is readily available they raise the price because they say they need to control demand and when anyone can make whatever case that something in the world might impact the availability they can raise the price based on some assumption of future events....either way they raise the price of oil. As far as anyone knows the oil is still flowing out of Libya...it is expensive to oppress people. The current price rise is for profits not really related to availability....but one can do such things when you have that kind of power. Kind of like the local market raising the price of tomatoes today because of the projected rise in population in China over the next decade.

  • Comment number 63.

    Better get used to it, peak oil is just around the corner. buckle your seat belts, economic meltdown is on the way.
    http://www.prisonplanet.com/people-of-earth-prepare-for-economic-disaster.html

  • Comment number 64.

    A bit of light relief

    If you took all the economists in the world and laid them end to end they still wouldn't reach a conclusion.

    George Bernard Shaw.

    It is time to be taking these issues very seriously. These issues are not going to go away, and short term political burying of heads in the sand is losing us precious minutes.

    Beyond all the financial constraints... we cannot afford to have weak leadership.

    C'mon Dave... step up to the plate will you? Well informed, and tough decisions need to be made... I don't see anything like that for the moment... You really have nothing to lose it... has all gone pear shaped already ;)

    Forget idealism, forget the party line... do what you know needs to be done in order to bring us all through this...your place in the history books wil be assured.

    Pragmatism can still win the day, but only if you act quickly and descisively... think Winston Churchill... and not Neville Chamberlain.

    You are young.... you are charismatic, you are in-experienced, but here is your chance to shine... it is yours for the taking if only you have the courage.

    I am not a political animal but i do recogonize who has the power to make changes at this moment in time. If any other party was in power I would be giving the same pep talk to them. Idealism Scmidealism...

    Thames


  • Comment number 65.

    Re: wind and renewable energy
    The rise in oil prices and ‘peak oil’ increases the pressure on finding alternatives to fossil fuels. Both nuclear and wind energy have potential to augment and diversify our electricity supply. Wind is an essential component of this diversification, raising the levels of wind output to 30% of the UK electricity supply as proposed by the round 3 Crown offshore licensing would provide a useful reduction in our dependency on foreign fossil fuel supplies without requiring us to invest significantly in storage technologies. In addition the subsidy of electric vehicles would reduce our dependency on foreign oil and in the long term, with improved battery technology provide additional energy storage if used within a framework on a ‘smart grid’. Chris Huhne is right in his assertion that the recent high oil prices focuses us on the need to diversify our sources if energy away from those dependent on foreign sources.

  • Comment number 66.

    Here is a belated post for Sleepy Dormouse

    http://www.newsweek.com/2011/02/08/google-executive-wael-ghonim-admits-he-was-el-shaheeed.html


    You were asking about how these uprisings just happened... I am not sure this is the full reason, after all the enormous gap between rich and poor is a major motivator. However this Guy from Google seems to have had a major supporting role in Egypt.

    Power to the people

    Tooting Popular Front

    Apologies for the late reply

    Wolfie



  • Comment number 67.

    #64 What makes you think Cameron offers anything on what he's shown so far?

    Our biggest hope for change here is action by the US and they are so much in the pocket of the banks and their political wing nothing meaningful will be achievable despite overtures by the Obama presidency to overcome reliance on oil.

  • Comment number 68.

    Come on now, extend your argument a little further. If high oil prices precede recession AND demand is about to forever outstrip supply then......

    Welcome to the future.

  • Comment number 69.

    Re: comments about oil-fired power stations in UK. I noticed there was a comment about the power stations that were converted to oil. Actually - there are hardly ANY oile fired power stations in uk. There are, however, lots of GAS fired stations - there was a big rush in the 1980s for gas when the north sea was still producing lots of it. Now we actually have to import it.

    Anyway - here is a list of the power stations in england - just for accuracy you understand.

    http://en.wikipedia.org/wiki/List_of_power_stations_in_England

  • Comment number 70.

    # United Dreamer

    I have no real faith in Cameron, Other than if he can recognise how ephemeral his role is. If we can persuade him to be courageous then that I think is our only hope.

    I have already left the country...Hedging my bets

    For Cameron there is still a small window of change.

    I hate to sdmit it...


    Kind regards

    Thames

  • Comment number 71.

    Oil price rises tend to be self-correcting as they make viable further exploration which increases supply which stops the oil price from going through the roof.We are also seeing the $40 bln BPcost being factored in but this is not a permanent cost one hopes.
    What is happening is not being reported.
    As you rightly say, a cut in Libyan oil production at 1.5% is scarcely enough to boost the oil price,but behind the scenes there are speculators buying and storing oil in tankers offshore.
    But sooner or later, they have to sell ....... and when they do the price will drop .In 2008-9 the oil price briefly hit $150 but within a few monthe it was down to $73 a barrel.
    Air travel is down, and I am sure travel is down in Egypt and Libya,and with rising fuel prices,sales of gas guzzlers and non-essential car journeys are down ....... and whether or not Saudi is running out of oil is a very moot point .....if I was a sheikh, would I tell you I had 200 years of oil left or would I tell you I had hardly any left?
    Peak oil was big in 70s Britain....do you not remember the North Sea was running out by 1985? ..... I do , I remember watching the telly when I should have been in my bed.
    Peak Oil is a green fetish pandered to by oil execs smartly realising it keeps the price of oil high.

  • Comment number 72.

    61. At 9:11pm on 08 Mar 2011, Oblivion wrote:
    “…If I hear anyone talk about recovery I will have to immediately dismiss them as a blinkered idiot.”

    But surely it is only a downturn! If we close our eyes and all convince ourselves that the future will be green and leafy then we can collectively pull ourselves out of this.

    Now let’s close our eyes, click our heals together and say “there’s no place like debt, there’s no place like debt, there is no place like debt” and we’ll be fine.


    63. At 9:34pm on 08 Mar 2011, Averagejoe posted:
    http://www.prisonplanet.com/people-of-earth-prepare-for-economic-disaster.html

    AJ you’re not thinking confidently enough, come on think more confidently…

  • Comment number 73.

    - How many windmills? One for each house:

    http://www.ecofriend.com/entry/revolutionary-domestic-wind-turbine-claims-higher-energy-output/

    Add a suitable array of solar panels, a geo-thermal heating and cooling system, get an electric car and you're all set. If people thought for themselves a little more and stopped relying on the government to wipe their own noses for them, we could probably be energy independent in a few years from now...

  • Comment number 74.

    #49 Ex Engineer,


    Thanks for the interesting comment I was never expecting a real answer.

    The only way forward to be independent of HCs for industrial and domestic power within ten, fifteen years maximum is a rapid expansion of our nuclear power program. That is where I am coming from.

    Reworking our deep mine or open cast coal to methane to ethane to ethylene will provide adequate feedstocks for already diminishing chemicals, farma, plastics industries etc, that is not so obvious but likely to make a significant contribution to our dependence on HC imports. The technology is 20 years old but still sound.

    Are UKs politicians giving thought to the costs, military, economic, political, transportation, security etc of our future oil supplies, call them indirect secondary costs, these future costs will increase significantly unless the present staus quo is changed to become less dependent on external unreliable sources.

    Renewables have a secondary place at present only as a top-up to conserve primary energy sources.

    It is an oversimplification I know, but how much is it costing the USA taxpayer to secure oil supplies from Iraq in addition to the prime cost per barrel?

    That is what our useless politicians should be talking about, we the ordinary citizen pay for everything, especially their inability to see the UK and World as it really is developing.

  • Comment number 75.

    #65 P Ha,

    "Chris Huhne is right"

    Are you sure about that? Isn't this the same short sighted politician who recently cancelled the Severn barrage because it would only produce 5% of UK energy demand? Forget the fact that it would prove a template for future barrages in say Morcombe Bay, Solway Firth, Firth of Forth and Humber Estuary - that could easily equate to 20%.

    As for the cost then I would forward the same arguments that are used to promote unnecessary projects like the HSR2.

  • Comment number 76.

    We are in a serious situation,at the mercy of speculators and political instability. The price of oil matters enormously,especially as all other energy prices are linked to it. Like many where I live,I still use coal to heat my house,which is mined just up the road. The price has doubled since 2006 and is still rising at the moment. That the coal costs very little more to mine than 5 years ago,maybe 20% more at the most, you can see that massive profiteering is going on by energy companies and we are all being held to ransom by them.

    But the triple whammy of energy,petrol and food prices is now making life very difficult for ordinary people in the UK,especially as wages are not keeping up.Indeed,I find myself now paid 5% less than 4 years ago,on a pretty low salary even then.

  • Comment number 77.

    Oh dear what a mess, 90% of goods in this country are delivered by road, there will be lots of haulage companies going to go bust!!! The tax on road fuel needs to be reduced, untill anybody can come up with a solution to transport goods without lorries, trains or ships then of course inflation will go high as the fuel price goes up. Every Government has enjoyed taxing fuel, now its going to bite them back!! yet again!!

  • Comment number 78.

    66. At 9:49pm on 08 Mar 2011, Thames Ditton wrote:
    ----------------------
    Thanks very much for your post and remembering my previous query. I can see that it had an effect, but I very much doubt it would have sparked the revolution that happened without the population already being ready to revolt. They just needed something to get behind - a cause they could all relate to.

    It just shows how dangerous a disaffected population can be.

    I wonder how disgruntled the british are? How long will it be before I start writing angry letters to my MP, the Tory press or anywhere else I van think of. Not long at the rate I am getting poorer. Each of us has less to spend as the oil price goes up. The tories must be rubbing their hands with glee - its the best ready made excuse for the coming downturn / recession they got. And they could just get away with it unless we all wise up.

    If there is no income / reduced income there must be less spending, unless we, the people, borrow [this is not long term sustainable]. Recession here we come, but the reasons for the downturn will be covered in thick black oil. Reporters will need to be vigilant and super-accurate in their reporting to give true picture

  • Comment number 79.

    76 Lee...the more worrying fact is that our political and legal institution seem terrified of the powerful people who run the world now through the markets and by lending us money so we can pay to do their bidding.

    It really is like Alice through the Looking Glass...but as we have no powerful global institutions to control them it seems the Queens of Hearts are set to rein on unchallenged for ever.

    One little thought...our governments get away with much jiggery pokery by never presenting full and detailed comprehensible accounts every year which would soon highlight a lot of interesting priorities that we never get to hear about.

    In the likely future absence of courageous investigative journalism we could at least press for proper spending accounts so that keen citizens can highlight dodgy decisions and hold government to account through the internet?

  • Comment number 80.

    So useless, so senseless, so boring. Why must this verbiage continue on the BBC site? I grew up in Eastern Europe behind the Iron Curtain and was then used to the same kind of "analyses" in the Party's mouthpece newspaper. One recognises this mindset by just the smell of it. Why not get real instead?

  • Comment number 81.

    #18 >>We had a great little presentation at work today, summed up as "The guys at the top have all been promoted, all had pay rises, but their roles are unchanged. There's no further recruitment as there's no funds. We know it's a struggle and we're sorry..."

    For an extreme example of pay rises - http://www.bbc.co.uk/news/business-12682395

    He gets a bonus for *LOSING* money !! Can I have a similiar job, please ?? Pretty please ??

    Then the tree-hugging, do-gooders want a tax/levy on *ALL* banks regardless of their performance or operation (one-size-fits-all) !! Is it any wonder that HSBC is seriously thinking of moving their HQ operations back to Hong Kong ?? They don't want to be associated with such banks and be tarred with the same brush (as so many ill-informed are still doing in this very blog) !!

  • Comment number 82.

    77. At 11:32pm on 08 Mar 2011, bobthebolt wrote:
    “Oh dear what a mess, 90% of goods in this country are delivered by road, there will be lots of haulage companies going to go bust!!!”

    It is a mess but I don’t believe lots of haulage companies will ‘go bust’. The number of haulage companies will vastly reduce but a ‘number’ will be bought out and a ‘number’ will merge. The outcome will be the same where a large ‘number’ of drivers will lose their job and face economic hardship. Those companies that survive will be able to do so because they can pass some, but probably not all, of their increased fuel costs on further down the supply chain. The companies further down the supply chain that have to pay the increased costs will in turn pass the increased costs further down the line and so on. Eventually as every company’s margins are squeezed the final outlay will fall at the feet of the consumer.

    I consume therefore I am. At some point I will not be able to absorb all the increases. For me that is, hopefully, a few years away; but it is getting closer!

    We need to think more and consume less…

  • Comment number 83.

    #28 >>We have has YEARS to come up with cars that will run on fuels other than petrol and diesel, and as I understand it some good ideas have come about in the process, but you will never get away from the fact that no government seems to have the balls to stand tall and make a serious decision to go ahead and seriously start introducing the necessary steps to make these alternative fuels viable.

    This statement is not strictly true !! Take a serious look at the Brazilian gasohol situation. They have had vehicles that run on an alcohol/petrol mix for decades *AND* they made plans for a relatively sustainable future supply of that stuff.

    It is only recently that the US is starting to make use of alcohol/petrol mixes and they use unsustainable resources, like grain, to make their alcohol and, thereby, raising the global grain prices !!

    Regardless of all that noise about transportation, they are all a red herring !! The real elephant in the room is NOT transportation, which uses up a small fraction of the fuel needs, but electricity generation, which uses up most of the fuel needs !! Nuclear power, clean coal-fired stations, wave and tidal generated electricity will go a long way to cutting down on the needs of oil. Wind is usually to unreliable but very "showy" (i.e. in your face) !!

    >>There is something else I don't understand... the last time Oil reached $120 a barrel, the price at the pumps wasn't anywhere near as much as it is now so how has the price got so much more out of kilter? Other than greed by both HM government and the oil companies I can't fathom an answer.

    The last time oil reached $120/barrel, it was in "REAL" dollars and we paid for it at the pumps in "REAL" quids !! Now, the price of oil is in devalued dollars and we are paying for it in Quantitatively Eased quids with lots and lots of government fuel tax added on top !! Oil companies did not SUDDENLY get greedy. They've been greedy from the start (no change there) !!

    >>I guess the answer is that until we start getting serious about Hydrogen powered vehicles and the like we will always be shafted by the oil producing countries that are holding us to ransom.

    Unless instant and massive fireballs that engulf whole neighbourhoods really turn you on, Hydrogen is not the real answer !! So far, NO car company can honestly say what happens to hydrogen-fueled cars when they meet with a bad accident !! BTW, hydrogen leaks constantly REGARDLESS of any and all currently known containers. Until the science fictional "containment fields" are invented, it is generally NOT a good idea to light up a ciggie next to a tankful of hydrogen that's been standing for more than an hour !!

  • Comment number 84.

    #35 >>Electrify the whole of the rail network. Build new high speed rail lines to replace air travel. Build nuclear and renewable sources of electricity (as is already being done at faster rate than most countries) to power them.

    Very easy to say but lots harder to do !! First, in order to build anything, you have to overcome the NIMBY brigade !! Then, we can start talking !! The currently proposed high-speed rail to the North has strange bends in it that are not engineering necessity. These bends are NIMBY necessities !!

  • Comment number 85.

    I think that most of the analysis of the oil prices rises due to the Middle Eastern and North African situation is flawed. There appears to be the perception that this is just a temporary issue that will settle down. Whereas I see it as just the start of a process which will run for some time and have a considerable effect on the oil supply situation.

    It is very difficult to believe that the interim regimes will satisfy the demands of the people and we can expect to see these interim regimes also toppled in a succession of events - until the regimes reflect the wishes of the people. The people have the upper hand and have now lost their fear of these regimes. So it seems sensible to expect to see more people power in action and not to see the mood for change subside. The genie won't go back in the bottle. Currently there is no clear ideology to coordinate this public dissatisfaction apart from general opposition to the present regimes. However, as there is a mood for change there will be strong motivation to develop coordinating ideologies. This is likely to make this oppostion more effective, and more motivated.

    It's very difficult to see how this will not ultimately threaten the Saudi regime as it now is. The pro-US, pro-Western stance of the house of Saud is out of step with the views of the Saudi people themselves who do not have the same love of the US and West that the house of Saud has. The wealth of the Saudi regime will allow it to buy more time. However, it is really difficult to see how it will remain uneffected by public uprisings and regime change in neighbouring countries. I think the house of Saud will either have to switch to a less pro-Western position or see itself eventually toppled.

    The prognosis is not good. The West has maintained energy supplies in this region by essentially propping up and buying authoritarian regimes that are out of step with their people, who are a lot less pro-West and more anti-US than the regimes that have governed them. It is difficult to know how it will pan out in the long term except to say that the US and Western influence on the region will almost certainly be seriously weakened. Therefore oil supplies from the region will become much less reliable. Self-evidently this uncertainty will push oil prices up. I think this is very different than the situation in the 1970s where there was always light at the end of the tunnel. In the 1970s these were government disputes, controlled by governments, and which could be settled by governments agreeing. Whereas the current situation cannot be settled by government action, as the people are in conflict with their governments. There can be no brokered peace deals as the only thing that can satisfy the public is the disappearance of the regimes they dislike.

    So the oil supply facilitated by authoritarian Western backed regimes is unlikely to be a situation that reappears. In such circumstances it is somewhat difficult to see oil prices slipping back to old levels and stabilising. I think the mistaken thinking on this issue is due to false premises based on previous history. Previously there were strong authoritarian regimes that could be bought by the West and US influence. However, this is the very thing that is disappearing. It is difficult to see the US and West buying the same favour with these new regimes, being that much of the opposition to them is their pro-US position out of step with their people. In reality it will probably be much easier for powers like China to buy influence with the new much less pro-West regimes.

  • Comment number 86.

    To me the 'economy' is a very strange beast. I am now 64 and during my life time it seems we are getting worse off by the week (let alone year)!
    Prices rocket and oil goes nuts. Food production plumets and the prices and population goes skyward. Completly out of control.The 'Western' rich folk give our production jobs to China and India and we like fools buy 99.9% of it back. Those cutting our own throats deeper each day.
    I understand that the already rich want even MORE and to heck with the rest; BUT! This is going to lead to one thing! Huge unrest of the masses (as is going on now in various countries)and then even closer to
    WWIII! That will be the ONLY way out for most of us and to get the world back in line with it's sustainability!
    War is not a nice thing but it is a perfectly natural thing to happen on this little planet we call earth. Every living thing has a daily struggle to survive and we humans are NOT exempt!
    So oil is out there and we will/do fight for it(the likes of G W Bush & Co. call it democracy to placate the fools); Just as we do for land, food, water etc. etc. etc.!
    So! Am I bovered? Na! I gave that up years ago! Oil can hit $500 a barrel and I'll still be poor!

  • Comment number 87.

    #40 >>(the US dollar is still pinned against the price of gold)

    I suspect you have a problem with your tenses !! The US $ has *NOT* been "pinned" to the price of gold since the '70s !! And therein lies the current elephant in the room !! When the value of the dollar starts getting fictitious, everyone ask for more dollars for their products to compensate for what they see as a potential fall in the value between asking and payment !!

    Helicopter Ben and his Quantitative Easing(s) have a lot to answer for in this instance !!

  • Comment number 88.

    #49 >>Completely removing fossil fuels from electricity generation and transport is very, very achievable on a 30 year timescale.

    There's one major problem with this statement !! Name me ONE government in the last 150 years that lasted 30 years !! Without that, this whole thing becomes yet another political football match and ends up getting shelfed until it is too late !!

  • Comment number 89.

    #51 >>Think! (to steal an ad from a large computer co.)

    Re. THINK - Many summers ago, the aforementioned large computer company decided that it was such a great slogan that it placed that everywhere, including on the mirrors above the *sink* in the men's room. Some "smart" person drew an arrow down towards the soap-dish and wrote "THOAP" !!

    Just thought you'd like to know. Sorry to be off-topic !!

  • Comment number 90.

    38. At 7:09pm on 08 Mar 2011, Tim0thy wrote:
    #30 EconomicsStudent
    Could we have this in English please? Or is that why you are still a student?

    No. Go study or stick with whimsical philosophy

  • Comment number 91.

    Time to worry about oil?

    Yes ... but for the next few weeks we should all be more worried about the March 23rd Budget

    The budget needs to deliver
    IMPACT
    MOMENTUM
    MULTIPLIER EFFECT OF POLICY TOOL EFFECTS ... (and not just multiplier effect of money)

    It must slash VAT to put more money in the pockets of those who need more real net disposable incomes i.e the 'have nots'

    It must have combined and immediate redistributive impact of somewhere between £50 - £75 on VAT/Import tariffs ... and tackle issues like supermarket cartel import sucking sleaze and tackle over-privilege.

    Otherwise, the underlying UK slump will worsen for all but the bent, over-privileged, parasitical, global players.

  • Comment number 92.

    Harnessing cheap fossil fuel energy, in particular the very energy dense ideal for transport liquid version (light sweet crude oil), has been the power source behind economic growth since the start of the industrial revolution. I have been consistently posting here that the end of cheap plentiful oil is the end of economic growth that we have taken as much for granted as day following night. Effectively we have not even considered the implications when this use once only resource can no longer keep pace with the demand for it. That time has now come and the bad news is that from now on (or certainly within the next five years) the amount of net energy from oil that we can extract from the ground will decline rapidly at between 4 and 6% per annum.

    Just consider the implications to growth and our growth-centric economy this will have. It is time for all ostrich's to take their heads out of the sand and collectively apply our faculties and resources to working on viable strategies to sustain civilised societies. These must include but not be limited to:

    1) Blue sky project Manhattan style scientific research to discover and productionize high net energy alternatives (nuclear fusion, Star Trek matter-anti matter etc).

    2) Conservation of existing resources by building "stuff" to last and be easily fixable when it breaks down. Going local in terms of production of stuff and supply of services and increased electrification of transport systems and reduction in the use of personal transport.

    3) Education of how to grow your own food and promotion of local food production over long distance supermarket food policies.

    4) Growing wood for use in heating homes during winter.

    5) Government taking control of the money supply and drastically cutting back the financial sector and it's largely non job role in society.

    6) A birth control reality call at home and abroad to turn population humanely towards sustainable levels that do not require industrial agriculture using 10 calories of fossil fuel plus fossil fuel fertiliser and pesticides to produce 1 calorie of food and also run down the millenia old underground water stores in much of the world.

    A new way of economic thinking is required. GDP growth has to be abandoned as the way we measure ourselves as a nation and indeed world.

  • Comment number 93.

    Sorry forgot the billions!

    91. At 07:23am on 09 Mar 2011, nautonier wrote:

    Time to worry about oil?

    Yes ... but for the next few weeks we should all be more worried about the March 23rd Budget

    The budget needs to deliver
    IMPACT
    MOMENTUM
    MULTIPLIER EFFECT OF POLICY TOOL EFFECTS ... (and not just multiplier effect of money)

    It must slash VAT to put more money in the pockets of those who need more real net disposable incomes i.e the 'have nots'

    It must have combined and immediate redistributive impact of somewhere between £50 BILLION - £75 BILLION on VAT/Import tariffs ... and tackle issues like supermarket cartel import sucking sleaze and tackle over-privilege.

    Otherwise, the underlying UK slump will worsen for all but the bent, over-privileged, parasitical, global players.

  • Comment number 94.

    Ah - any excuse to "up" the price of oil.

    IF Libya really were the driver of price (but its a miniscule producer in global terms), then once Gadaffi has been chucked out and production returned to normal, prices should drop to around $50 dollars, due to overproduction capacity. (it takes time to wind other countries down)

    Of course, oil traders (commodity brokers, RBS, BarclaysCaptial etc) don't want to lose the "shirt off their back" when "bets"(hedges, futures contracts etc) go sour!

    So are OIL "interests" SUPPORTING Gadaffi, even whilst he struggles to retain power?

    It is, after all, in their interest (of high prices) to do so - even whilst politically, he's a "dead duck"!

    Makes you wonder how he's managed to hang on this long...!

  • Comment number 95.

    Sage @ 92 - you are so right.

    The solutions are really so simple...what we need to do is treat the cause and not the symptom.

  • Comment number 96.

    Apart from the fact that it is obvious to anyone with an ounce of intelligence that a diminishing resource that has such an influence on the world economy will eventually cause massive problems, it would have been nice if Stephanie could have managed the correct spelling of Gaddafi instead of Gaddafy. Sorry for being so picky. We're all doomed anyway.

  • Comment number 97.

    re #28
    There is good evidence that as car manufacturers make cars more fuel efficient, decade after decade, Government forces us to travel further and further, to access services that used to be available locally (on foot even) on roads that have been made less efficient.

    But the Golden Goose of fuel taxation is already looking a bit sick and has lost a few feathers. Soon it will be waddling down the farm lane to swim in the pond eternal, it will be climbing to join skein of flight in ethereal skies, it will be honking its last honk, it will be dead, deceased, gone to meet its Maker ...

    Hey! Let's be careful out there, today.

  • Comment number 98.

    When America assaulted and occupied Iraq over the price of oil, it was much cheaper than today. Now at $100 it is still not a problem for the world economy. Instead of the oil price, it was your bankers who brought the world to the brink of apocalypse! We do not need to attack other countries, the target to hit to ensure a future sits right in the heart of London!

  • Comment number 99.

    re #91 and 93
    Nautonier, old mate, wonderful posts. You must be a bit of an economist. I'm a bit of an(other) economist, too.

    In #91, you lost the billions. That almost makes you a proper economist.

    So, I'll agree with you. But then, on the other hand ...

    Inflation is the big problem. It might be sufficient to bring the Coalition down on its own. But maybe not. By its nature, it is an urgent problem. North Africa might become instantly peaceful tomorrow, speculation in commodities might cease tomorrow night and the oil price might subside instantly to $70 a barrel the day after.

    But inflation at the current or increasing rates will be with us for a year or more.

  • Comment number 100.

    re #92
    I can see the Government slogans ...

    'Stay home and cut down a tree today!'

 

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