[R-G] [BillTottenWeblog] Is the world about to be running on empty?

[Bill Totten]

As evidence emerges of dwindling oil reserves, the price of crude hits
$135 a barrel

by Stephen Foley in New York

Independent.co.uk (May 23 2008)


In France, fishermen are blockading oil refineries. In Britain, lorry
drivers are planning a day of action. In the US, the car maker Ford is
to cut production of gas-guzzling sports utility vehicles and airlines
are jacking up ticket prices. Global concerns about fuel prices are
reaching fever pitch and the world's leading energy monitor has issued a
disturbing downward revision of the oil industry's ability to keep pace
with soaring demand.

Yesterday's warning from the International Energy Agency sent the price
of a barrel of oil to a new record for the thirteenth day in a row. The
latest high - $135 for a barrel of light sweet crude - was reached in
New York barely five months after the price hit $100. Experts in London
and on Wall Street predict that prices will rise to $200, regardless of
the protests of consumers and the complaints of politicians. It is
simple economics, they say: supply and demand. The former is short, the
latter growing.

Consumers are feeling the pinch in almost every area of their daily
lives. The pain is felt most obviously at the pumps. In Britain, the
price of petrol has risen to an average of 114 pence for a litre of
unleaded - GBP 5.15 per gallon. In the US, where drivers pay much lower
prices, gasoline is more than $4 (GBP 2) a gallon. Beyond that, energy
bills are rising for households across the globe, hitting the poorest
the hardest. British Gas, the nation's biggest gas and electricity
supplier, is mulling further price rises, on top of the fifteen per cent
average increase it introduced in January.

Airlines which once limited fare increases to temporary "fuel
surcharges" are now raising ticket prices and - as American Airlines did
this week - starting to charge for checked baggage. Meanwhile,
manufacturers are putting up the price of goods to compensate for higher
energy bills at their factorues, ending many years of price deflation
that began when firms started transferring production overseas.

"The high-priced energy environment is being driven by the fact that
demand has outstripped supply", President George Bush's Energy
Secretary, Samuel Bodman, told the US Congress yesterday. "We have
sopped up all the available spare oil production capacity in the system
... and there is no silver bullet that will immediately solve our energy
challenges or drastically reduce costs at the gas pump".

The world uses about 87 million barrels of oil a day, about a quarter of
it in the US. Saudi Arabia is the only country thought to have the
capacity to pump oil faster. Meanwhile, China is in the throes of an
industrial revolution that demands ever greater supplies of crude, yet
global production has stagnated for two years. The Saudi government
rejected a recent appeal from Mr Bush to increase production, saying
there were no oil shortages at present. Economists worry, though, that
shortages are around the corner, as mature oilfields wind down.

The Paris-based International Energy Agency (IEA) said yesterday that it
might have overestimated the capacity of oil-producing nations to open
new fields to keep up with growing demand over the next decade. Global
production, which the IEA previously reckoned could reach 116 million
barrels a day by 2030, might not even make 100 million.

Fatih Birol, the IEA's chief economist, said the oil industry had
entered "a new energy world order" where it was harder to keep supply
and demand in equilibrium. "When the price went up as a result of the
Iranian revolution, demand went down", he added. "But what has happened
in the last few years has not been in line with economic theory. The
price of oil went up sharply between 2004 and 2006 and demand actually
increased. That may seem bizarre but it is the result of new buyers
coming in, such as China and the Middle Eastern economies where fuel is
subsidised by government and rises are not reflected on the consumer side."

Some politicians in the US rail against nationalised oil companies in
the developing world for failing to invest in new production that might
alleviate stresses in the market. And at every turn, Mr Bush and members
of his administration insist that environmentalists should yield to the
public hunger for oil and Congress should authorise drilling in the
Arctic National Wildlife Refuge in Alaska.

However, the investment bank Goldman Sachs said this month that the oil
price could rise as high as $200 over the next year and would remain
consistently above $100 until there was a significant fall in US demand.
There are small signs of that happening. Yesterday, Ford said it was
cutting vehicle production by more than it announced earlier this year.
It will make the deepest cuts in its SUV and pick-up truck businesses
because US customers are increasingly switching to lighter, more
fuel-efficient vehicles. Alan Mulally, the chief executive, said pick-up
sales now accounted for nine per cent of the market compared with eleven
per cent a few weeks ago.

Copyright (c) independent.co.uk

http://www.independent.co.uk/news/business/news/is-the-world-about-to-be-running-on-empty-832874.html


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