Soaring oil spells real trauma

Eighteen months ago when the guys at Goldman Sachs were forecasting that the price of oil would go to $100, it was widely dismissed as nothing more than the bank talking its book.

Today, with oil hitting $110, the markets have changed their tune. Now the idea of oil at $150 or even $200 is not sneered at. It is seen as possible.


Barclays Capital’s Tim Bond did some work a few weeks ago that underlines the point dramatically. The reason all commodities have soared in price – metals as well as oil and food – is a result of the industrialisation and growth of China, India and the rest of Asia, which is bringing literally billions more people into the world economy as consumers.

Bond extrapolated what would happen if China and India increased their consumption of oil to the per capita levels seen in the United States – which could happen within 25 years.

Assuming the rest of the world used no more oil at all, the arrival of China and India would double world daily demand. If the rest of the world also continued to grow, we would need almost three times as much every day as we currently produce. Pumping oil at that rate would reduce all known reserves of oil in 26 years.

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