Monday, February 21, 2011

Middle East Unrest and Petrol Prices

With news of more unrest in the Middle East and particularly Libya, the Brent Crude future price benchmark has jumped 5.6% to over $108/barrel.

So now would be a good time for the Government to give some relief to hard-pressed motorists by postponing some of the upcoming fuel duty increase, right?

Probably not. Because although it would give a short-term reduction in petrol prices, what we're seeing today is likely to be only a prelude to a decade of increasing oil prices. Reducing fuel duty, as well as making a big hole in the public finances, would give the signal that the current troubles are only a bit of choppy water, and in a few months we'll be back in the calm seas of cheap oil again and we can go out and buy more Range Rovers. While $108/barrel is a recent high, and UK retail petrol prices are at record highs, crude itself is still some way below the historic price high and many observers believe it will go significantly higher.

The Government really needs to get the message across that although a rising oil price is not a certainty, it is a good bet, and there are serious downside risks if we fail to prepare adequately for it. The simple fact is oil-dependency is bad for the economy. The best way to defend against the damage high oil prices will bring is to become less dependent on oil - to use less of it, by buying more economical vehicles and by driving less. If we do so, we'll have a competitive economy. If we don't, oil will be a millstone around the neck of the economy, depressing consumer demand, sucking wealth out of the country and saddling industry with increased costs. A government that can claim to good economic stewardship would not be afraid to give the message that people don't want to hear - that petrol prices will carry on going up and we'd better get used to it. The Government are quite happy enough to impose pain in the name of deficit reduction. Unfortunately, they've nailed their colours to the 'war on the motorist' agenda in pursuit of short-term political gain. They've protrayed motoring as a benign freedom to be enjoyed without Government interference. Right now however we're finding out that motoring has the power to sink the economy, as people stuck with long commutes in thirsty cars have to cut back their spending to fund their oil dependency.


  1. Does this look suspicious?

    Now consider this:

  2. The 1997 article suggested that 2010 demand would be about twice 2010 supply. 13 years after it was written that prediction is clearly untrue - there may be pressure on supply but not to that extent.

    Commentators frequently make the mistake of assuming that because we can't see the technical advance at the moment, it is impossible or far off - would you have believed 13 years ago that you could transmit data to/from your own home at rates of 20mb/s or faster, as you used your old V22bis modem?

    I am not convinced oil is about to run out - it will get harder, more expensive and more dangerous to extract (as we have seen with Deep Water Horizon) or dirtier, as we see with Canadian oil-shale deposits. Even then most developed economies have largely stopped mining coal which is still present in huge quantities - desperation will eventually overcome any fastidiousness about its polluting effect even if scrubbers and carbon capture & storage isn't cracked. You can make oil out of coal, as Sasol did years ago. And you can extract gas from coal - after all before natural North Sea gas, that was how our cookers were fuelled.

    Strikes me that we are more likely to drown in raised sea levels, or suffocate in a high CO2 atmosphere, or be wiped out by huge storms, before the oil runs out.