Average UK petrol prices rose above £1 a litre this week for the first time.
They increased to just under 101p on Tuesday, up more than 17 per cent from
about 86p a year ago, according to the AA.
In the past two months prices paid at UK petrol stations have climbed sharply,
driven by the increasing global price of crude oil, which exceeded $98 (£47)
a barrel this week.
Why do oil prices keep on rising?
Low stocks of oil in the US, the world’s biggest consumer, and a decision last
year to cut production by the countries of the Organisation of Petroleum
Exporting Countries (Opec), which is responsible for about a third of total
world oil production of 85 million barrels a day, have upset the balance
between global supply and demand.
Chinese demand for oil is expected to more than double from 7.1 million
barrels a day in 2006 to 16.5 million barrels by 2030. Soon after 2010,
China is set to overtake the US to become the world’s biggest energy
consumer, while sales of new cars in China will exceed those in the US by
2015, generating a huge demand for transport fuel. The figures for India
tell a similar story.
In addition, US tensions with Iran and the conflict in Iraq has created
nervousness about the security of oil supplies from the Middle East.
Are there any other reasons?
Yes. Big investment banks and hedge funds have also been placing bets in
recent months that oil prices will keep on rising, which has driven prices
higher. Some economists believe that as much as $20 in the current price of
nearly $100 a barrel can be blamed on such “speculative” buying.
Are we running out of oil?
We are running out of oil that is easy to find and cheap to produce. Some of
the world’s biggest oilfields first tapped in the 1950s and 1960s – such as
Ghawar in Saudi Arabia, which accounts for almost 6 per cent of total global
production – are now running dry, or “wet” because of the increased
quantities of water that need to be pumped underground to force out the
remaining oil. The North Sea is in a similar predicament.
How much is left?
According to BP, there are still 1,208 billion barrels of oil in proven
reserves left in the world – another 38 years’ worth at current levels of
consumption.
Nobody really knows how accurate such figures are, or how much more oil is
left that hasn’t been discovered, but the big deposits are in inaccessible
spots – deep beneath the Arctic Ocean, under the earthquake-prone deserts of
Central Asia, in the Russian far north and in politically volatile countries
such as Iraq. Many parts of Africa also remain unexplored.
There are also vast reserves of unconventional oil in the form of tar sands
and oil shale rocks. But these deposits are very costly to extract – both
financially and in terms of their impact on the environment.
There are thought to be more than 163 billion barrels of oil in the Canadian
tar sands of Alberta, for example. These are now being exploited for oil by
companies such as Shell but it may be necessary to use nuclear power to
extract it on a commercial scale.
Ultimately, oil is a finite resource. We have been running out of it since we
started using it for fuel thousands of years ago.
How much higher can oil prices rise?
Oil prices have already more than quadrupled since 2004 and, in the short
term, few people in the industry believe that they can remain at current
levels indefinitely without at least a temporary fall. However, many also
think that speculators are likely to force prices above the $100-a-barrel
level before there is a significant drop.
Can anything end the price increases?
An end to speculative buying or a decision by Opec to boost production could
help to force prices lower. This second possibility could come as early as
next week during a meeting of Opec in Riyadh, Saudi Arabia.
A decision by Western governments such as those of the US or France to release
some of their own strategic petroleum reserves would also help to lower
prices. High oil prices are also stimulating a frenzy of investment in new
fields that were previously considered too small, expensive or geologically
challenging to extract commercially. It is possible that, when more of these
enter commercial production, this could have a dampening impact on oil
prices.
Have we got enough oil to satisfy demand?
Probably not. World oil production simply cannot continue to grow indefinitely
to keep pace with rising demand. By 2035, the world will use more than twice
as much energy as it does today and demand for oil could rise from 85
million barrels a day to more than 120 million barrels.
This week, the chief executive of Chevron, one of the biggest oil companies,
questioned whether global production could ever rise above 100 million
barrels a day. So, against a background of rising long-term demand and
increasingly questionable supply, high prices are probably here to stay.
The International Energy Agency predicts barrels will average $110 in 2030,
but adds they could rise to $159.
The big oil companies must be raking it in . . .
Yes and no. While big oil companies are hardly in the gutter, surprisingly
they are making smaller profits than they were a few years ago because the
cost of producing oil has shot up, as well as the price of oil itself.
Companies such as Exxon, BP and Shell are having to develop oil fields in
increasingly remote and hostile environments such as Sakhalin in the Russian
far east, while national governments are demanding a bigger share of the
industry’s profits. A recent study by the analysts John S. Herold showed
that the biggest 230 oil companies increased their spending on exploration
and development by 45 per cent last year to more than $400 billion – but
that their oil and gas reserves edged up by only 2 per cent.
What do high oil prices mean for the economy?
The modern economy is less dependent on oil than it was in the 1970s, so the
impact has been less acute than it was during the 1970s oil shock.
The fact that oil prices are quoted in dollars and the US currency is so weak
has also helped to cushion the blow for many countries.
Nevertheless, as prices continue to rise they present an inflationary threat
and also act as a brake on growth by absorbing the spending that consumers
make on other goods.
The possibility of an oil-linked economic shock is certainly growing,
especially when combined with the other problems in the global credit
markets.
What about the UK?
UK consumers are less exposed than in other countries because fuel taxes here
are so high. Certain industries that are heavily dependent on transport –
hauliers, farmers and supermarkets, for example – have been particularly
hard hit.
And the environment?
The International Energy Agency believes that on current oil consumption
trends, global emissions of CO2 will grow from 27 billion tonnes in 2005 to
42 billion tonnes in 2030.
This would be in line with an increase in global temperatures of 6C, according
to projections by the Inter-governmental Panel on Climate Change – a
scenario that would probably herald an ecological disaster.
Hopefully, high oil prices will help to encourage greater energy efficiency,
both by individuals and companies, and also stimulate investment in
renewable and alternative fuels that do not contribute to global warming and
are less damaging to the environment, such as hydrogen fuel cells. If they
don’t, we are in serious trouble.
— The global daily demand for oil in barrels last year, rose to 85m up from
65m in 1980
— The expected increase in daily demand for oil in barrels in India by 2030 is
3.9m
— Daily consumption of petrol in litres in Britain is 69m
— The Chinese demand for transport fuel is expected to be 4 times greater in
2030
Source: International Energy Agency; Automobile Association
I guess this $100 a barrel target set by the "Bilderberg group" has worked a treat for its attendee’s profits. The price of oil is fixed, so what it means for world economies is that the people in the know place them selves in a positive position, knowing for a fact that the $100 a barrel is going to happen, then they "reap what they sow".
The world and its people are controlled by the “Black Goldâ€, so the price of it has huge implications for world economics.
The real slogan should be "Sun made Global Warming" and who ever thinks weather is predictable needs to give there head a shake. We've had several ice ages before "man" was known to have even been on earth, each and every time the earth goes through these natural cycles, it comes back to "normal" again.
Thing is though, the Sun is getting hotter, this we know for sure.
Andy T, Hartlepool,
We use 69m litres daily !
How much more when Scotland enter the Premier league.Why not a restriction on Football supporters travelling,mileage must be astronomical,apart from the additional Global warming,from the exhausts.
derek bevan, Huntingdon/Cambs, England/UK
The problem with all global problems such as energy is that politicians and business leaders do not move until they have to and only in the event of impending disasters. Successive governments and industry around the world have known that oil would one day run out, but it has always been , not on my watch so why should I bother. In other words leave it to someone else to solve the problem. But the problem is actual this and not that oil will run out. Indeed, the energy crisis that will eventually loom on the world-at-large in a massive way, will have been totally created by past and present politicians and leaders of industry through their neglect and non-attention to the problem. Overall, the problem is one that is time served and where in the 1960s when this problem was first really brought to the attention of the world, politicians and business leaders should have then started the process of change-over and discovery of new energy sources.
Dr David Hill
The WIF
www.thewif.org.uk
david hill, Bern, witzerland
don't forget taxes--55% of price of a litre is tax
saud, riyadh,
No wonder we are sceptical. In this newspaper today there is a report about the proposals by Professor Julia King. In it there is a mention of hydrogen for fuel cells causing 400% more damage to the environment than burning traditinal fuel. And you want us all to believe in global warming?
jimd, Norwich, uk