David Strahan: Have we reached the end of the road for oil?

Petrol prices are set to fall this autumn, but David Strahan argues that oil is now so scarce that it may never be affordable again

With the oil price apparently in full retreat, it is tempting to breathe a sigh of relief. After soaring to an all-time high of more than $147 a barrel in mid-July, the cost of crude has dropped by nearly $30 in the last four weeks. Although the price is still more than 10 times higher than a decade ago, some analysts are now talking of a “tipping point”, predicting a continued slide to $90 a barrel.

So why has a commodity that until recently seemed like a one-way bet suddenly gone into reverse? And having helped push the economy to the brink of recession, is the oil shock over, or merely in remission?


…Contrary to the sanguine view put forward by Martin Vander Weyer in these pages yesterday, the facts are stark: the world has been discovering less for the last 40 years; for every barrel we discover we consume three; output is in terminal decline in 60 of the 98 oil-producing countries; and hundreds of billions of dollars in investment since the turn of the century have failed to stem declining production at many of the world’s biggest oil companies.

As a result, it is widely agreed that oil production in the non-Opec world will “peak” – reach its maximum possible level – within two years, if it has not already done so. This means that the huge profits being made by multi-nationals such as Shell or ExxonMobil may turn out to be their last hurrah. “The days of the international oil companies are coming to a glorious end,” said Fatih Birol, chief economist of the International Energy Agency, last month. “Their reserves are declining and they will have difficulty accessing new ones.”

Unfortunately, this means that the global oil supply will soon depend on Opec as never before. Many analysts suspect that the Opec countries, which claim to hold three quarters of known reserves, have been exaggerating their size for decades – in other words, they too will soon reach the physical limits of production.

Telegraph