Funds try to spot the great oil rebound

Oil is too cheap. At around $50 a barrel, it is trading far below the production costs of almost all new sources of crude and energy substitutes.

A sustained price above $70 is needed to cover investments in Canada’s tar sands, the deep-water fields off Brazil, and Russia’s “High North” above the Arctic Circle.

Much the same goes for biofuels from grains (sugar is cheaper). They matter. Bioethanol swings the global crude price. It accounted for 60pc of extra oil supply worldwide from 2007-2008.

Crude at $50 does not square with the failure of the big oil companies to replace reserves over the last five years, or with the lack of coal and nuclear plants to plug the gap. It takes 10 years or so to put a nuclear power station into service.

Nor is it compatible with the breakneck industrialisation of Asia. China expects to have 140m cars on its roads by 2020, up sevenfold in a decade.

So unless the world economy tips into acute deflation (possible: prices are already falling in the US, China, Japan, Spain, and Switzerland) and unless the G20’s monetary stimulus fails to prevent a slide into protracted depression, it is a safe bet that oil prices will roar back.

Telegraph