By Business Day –
LONDON (Business Day) — Not long ago, the notion of crude oil hitting $60 a barrel would have caused apoplexy. But, after two years of steadily rising prices, the fact that oil trading in New York came within 30 cents of touching the $60 mark, setting a record in the process, passed with barely a murmur.
There are contributory reasons for the sudden spurt in prices this week, such as a threatened strike in Norway. But the underlying message is that higher oil prices are here to stay – and may rise to $100 a barrel, according to some forecasts.
The US energy secretary worries it will take years for the sharp increases in demand, caused by growth in developing countries, to pass. That is the optimistic scenario.
The pessimistic scenario is that the world is fast approaching “Hubbert’s peak”, the point at which the rate of global oil production begins to decline. In either case, oil prices will keep rising. The biggest optimist cannot ignore the fact that the annual average increase in demand for oil has been about 1-million barrels a day from the 1970s – until last year, when the average increase shot up to 2.5-million barrels a day.
According to International Monetary Fund forecasts, global demand will rise from about 82-million barrels a day now to nearly 140-million by 2030. Barring a technological breakthrough in the combustion engine – which could still lead to additional consumption, an effect known as the Jevons paradox – the increased demand will presumably be met by much higher prices and the exploitation of marginal reserves.
Yet higher prices that curb demand in industrialised nations will wreak havoc in less-developed nations, especially nonoil producers, where increases in fuel costs affect economies to a greater degree.
Juggling demand and price against the role of oil as a cause of global warming is also a quandary for world leaders. For one reason or another, the reign of oil must end.
Source: Resource Investor