Peak nationalism

…It would be natural to assume that ever increasing price reflects ever greater scarcity. And so it does, in a sense. Booming bits of the world, such as China, India and the Middle East have seen demand for oil grow with their economies. Meanwhile, Western oil firms, in particular, are struggling to produce any more of the stuff than they did two or three years ago. That has left little spare production capacity and, in America at least, dwindling stocks. Every time a tempest brews in the Gulf of Mexico or dark clouds appear on the political horizon in the Middle East, jittery markets have pushed prices higher. This week, it was a cold snap in America and turmoil in Nigeria that helped the price reach three figures.

No wonder, then, that the phrase


Geography, not geology

Yet the fact that not enough oil is coming out of the ground does not mean not enough of it is there. There are many other explanations for the lacklustre response to the glaring price signal. For one thing, oil producers have tied their own hands. During the 1980s and 1990s, when the price was low and so were profits, they pared back hiring and investment to a minimum. Many ancillary firms that built rigs or collected seismic data shut up shop. Now oil firms want to increase their output again, they do not have the staff or equipment they need.

Worse, nowadays, new oil tends to be found in relatively inaccessible spots or in more unwieldy forms. That adds to the cost of extracting oil, because more engineers and more complex machinery are needed to exploit it