Oil: the party is over

Welcome to the world of US$70-per-barrel oil. That’s if there is no crisis in the Gulf over Iran’s nuclear ambitions. If there is, then get ready for US$140 a barrel. Oil briefly breached the US$70 barrier eight months ago, but this time it is going up for good.

Exactly one year ago the investment bank Goldman Sachs put out a paper suggesting that the “new range” within which oil prices will fluctuate is US$50-US$105 per barrel. (The old range, still used by most of the oil industry when deciding if a given investment will be profitable, was US$20-US$30.) The price could surge well past the upper end of the Goldman Sachs range if the United States actually does launch military strikes against Iran, but it’s going up permanently anyway.

Transient events like the Iran crisis and the political unrest in Nigeria (which has cut that country’s exports by a quarter) drive the daily movements in the oil price, but the underlying supply situation is so tight that oil would stay high even if Nigeria turned into Switzerland and Iran opted for unilateral disarmament. “On production, there is nothing we can do. (OPEC, the Organisation of Petroleum Exporting Countries, is) already producing at maximum output,” said Abdullah al-Attiyah, Qatar’s Oil Minister.

This is not about “peak oil,” the notion that we are already at or near the point where total global oil production reaches its maximum and begins a long decline. That may well be true, but the present price rise is just about rising demand for oil as the big developing countries, especially the Asian ones, lift large parts of their populations into the middle class.

Trinidad Express