Oil prices up: What next?

Americans are already paying through their noses for gasoline prices and they think it’s only going to get worse. A barrel of oil is about $107 compared to the $120 during the summer. So far the economies of the “Brics” (Brazil, Russia, India and China) are still growing strongly, but the old industrialized economies are definitely heading into a recession, and they still consume most of the oil.

This recession has not actually been caused by the high oil prices; the sub-prime mortgage scam is to blame for that. Within this short period of time, the government has had to bail out companies such Fannie Mae and Freddie Mac, Lehman brothers and most recently AIG.how much effect this will bring.you tell me.

The price will rise because demand will recover much faster than supply can grow, if indeed it grows at all. Early September last year, a new oil field was found off the coast of Brazil but even if it lives up to the advertising, it is five to 10 years away from large scale production.

The world’s largest oil producer Saudi Arabia admits that there isn’t enough spare capacity among the OPEC producers to make any difference. Russia, the biggest non-OPEC producer, will probably see production fall this year. Practically everybody else is already pumping flat out.

So, once the recession ends, the price of oil will probably remain at about $100 for most of the time from say 2010 to 2014.But it will not hit $200 because there will be a steep rise in the supply of non-conventional oil from tar sands, oil shales and other sources of “heavy oil”. Even if the moment of Peak oil is upon us that would not mean the end of oil: it just means the end of sweet light crude oil.

In recent years, the tar sands “Oil Sands” have proved to be profitable as oil prices rose. The Alberta tar sands are profitable if the price of oil stays over $40 a barrel: at $60 the far larger Venezuelan tar sands are a variable economic proposition: at $80, even the oil shales of the western USA are promising. If the supply goes up, the price goes down thus a small possibility for increasing the supply of conventional oil. However the latter may occur with unconventional oil at a high environmental cost.

In a world with stable climate, ample unconventional oil supplies would bring the price down below $100, but that is not the way it is likely to play out. By 2014, global tolerance for any process that involves high emission of greenhouse gases is likely to be very low. There is likely to be a good deal of pressure to cut back on the consumption of conventional oil.

Five years ago, global warming was a distant worry in most parts of the world. In North America, where the denial industry had its headquarters, it was widely disbelieved. Now it’s a high priority in the USA, Europe as well as China and is rapidly growing worry around the world. Go a few years down the road and throw in a few more climate related catastrophes like Hurricane Katrina or the killer heat wave in Europe in the summer of 2003 and the most recent of them, the cyclone in Myanmar. What will popular support for burning fossil fuels be in 2014?

Cutting back on the use of oil, coal, and gas will not be a rapid or smooth process because the potential substitutes are either technologically immature or too expensive. But rising demand and the passage of time will change that, and gradually the use of fossil fuels will drop.

Billions of people that live in countries whose economies are growing fast will increase the demand and thus keeping the price of conventional oil near the $100. However the pressure to shut down extra high emission and unconventional oil production may become irresistible.

In the longer run , the demand for oil will probably fall even further and with it the price. How do we know that? Because if it hasn’t fallen due to a deliberate switch away from fossil fuels, then global warming will gain such momentum that countries will be falling into chaos instead.

To a deliberate switch away from fossil fuels, then global warming will gain such momentum that countries will be falling into chaos instead.