Crude will stay high

A good evaluation here from Hamish McRae of some demand and supply-side reasons why oil prices are unlikely to fall as steeply as they have in previous economic slowdowns.

This raises the key point – namely about how we as an economy and as individuals respond and adapt to a world where oil is no longer cheap? After the AS exams I will be showing my students a number of films and documentaries one of them is A Crude Awakening: the Oil Crash

Hamish writes

“In past cycles, the price fell back because demand for oil from the developed world slackened and also because new discoveries, such as the North Sea during the 1980s, came on stream. This time it is different. Demand is likely to remain strong and there are no obvious new sources. Tar sands in Canada? Sure, but that is expensive and environmentally difficult to extract. Biofuels? Can be done, indeed is being done, but to turn US corn into ethanol has the obvious effect of reducing the amount of corn available for food. The world price of most grain crops mercifully seems to have topped out. But corn, or maize, remains very high.”

“As for trying to beat up Opec, as our Prime Minister seems to want to do, that makes no sense at all. True, Opec produces 40 per cent of world output, but all members bar one are producing about as much as they can. Only Saudi Arabia seems to have any spare capacity and even that is in doubt. It might have difficulty increasing output even if it wanted to”

The remainder of the article can be found here:

$130 a barrel and rising: it’s a Seventies-style shock but this time we won’t be held to ransom