Expensive oil in a weak global economy

by Milan on March 5, 2011

in Economics, Renewables, Security

Despite ongoing global economic weakness, oil prices are back over $100 per barrel, driven partly by concern about unrest in the Middle East.

People condemn renewable forms of energy for being expensive and unreliable. Increasingly, the same is true of fossil fuels. In addition, fossil fuel reserves are inevitably dwindling. As oil, gas, and coal become harder to come by, they will become more costly and more unreliable in supply. By contrast, as renewable forms of energy are further developed and deployed, they will become cheaper and more reliable.

So, which is the smarter bet for the global economy in the long run?

Report a typo or inaccuracy

{ 4 comments… read them below or add one }

. March 7, 2011 at 7:47 am

Oil and the economy
The 2011 oil shock
More of a threat to the world economy than investors seem to think

THE price of oil has had an unnerving ability to blow up the world economy, and the Middle East has often provided the spark. The Arab oil embargo of 1973, the Iranian revolution in 1978-79 and Saddam Hussein’s invasion of Kuwait in 1990 are all painful reminders of how the region’s combustible mix of geopolitics and geology can wreak havoc. With protests cascading across Arabia, is the world in for another oil shock?

There are good reasons to worry. The Middle East and north Africa produce more than one-third of the world’s oil. Libya’s turmoil shows that a revolution can quickly disrupt oil supply. Even while Muammar Qaddafi hangs on with delusional determination and Western countries debate whether to enforce a no-fly zone (see article), Libya’s oil output has halved, as foreign workers flee and the country fragments. The spread of unrest across the region threatens wider disruption.

The markets’ reaction has been surprisingly modest. The price of Brent crude jumped 15% as Libya’s violence flared up, reaching $120 a barrel on February 24th. But the promise of more production from Saudi Arabia pushed the price down again. It was $116 on March 2nd—20% higher than the beginning of the year, but well below the peaks of 2008. Most economists are sanguine: global growth might slow by a few tenths of a percentage point, they reckon, but not enough to jeopardise the rich world’s recovery.

That glosses over two big risks. First, a serious supply disruption, or even the fear of it, could send the oil price soaring (see article). Second, dearer oil could fuel inflation—and that might prompt a monetary clampdown that throttles the recovery. A lot will depend on the skill of central bankers.

. March 10, 2011 at 12:17 am

Keep gas prices high
Every time oil prices spike we miss an opportunity to kick our destructive addiction, writes Dan Gardner
Dan Gardner, The Ottawa Citizen

It’s March 1980. You are 19 years old and sitting at the wheel of your lime-green AMC Gremlin. Normally, you’d feel pretty cool. But you just left the gas station and it cost a fortune to fill up. Apparently, there was a revolution in the Middle East or something. Stupid Middle Easterners.

Ah, but who are you kidding? You can’t afford gas at any price because you lost your job bagging groceries. The price of food and lots of other things is also going up like crazy. People are cutting back. They have to. This recession is brutal. And everybody says it will only get worse.

They’re scared.

You’re scared, too. How will you score with the ladies if you can’t take the Gremlin out of your parents’ driveway?

Anxious and distracted, you miss a stop sign and T-bone a cement mixer. The Gremlin is totalled. You’re in a coma.

For 31 years.

It’s now March 2011. You’re 50 years old and you’ve had a miraculous recovery. Your hospital room was filled with excited doctors and TV crews, but now, after everyone has left, a psychologist sits down. He warns you that adjusting to the future won’t be easy. The world has changed, he says. He hands you a newspaper.

With trembling hands, you open it and start reading. High unemployment. Inflation fears. Revolution in the Middle East. Worries that soaring oil prices might tip economies back into recession.

You feel strangely comforted. “Pain at the pumps,” the headline says. A smile lights up your face. Even the clichés are the same!

You wonder what a Gremlin costs these days.

This is indeed a ludicrous story, but it seemed appropriate given the absurdity of the situation we face today.

. March 18, 2011 at 11:15 pm

Oil and the Arab world’s unrest
Oil pressure rising
The world is badly placed to cope with another oil crisis

A MONTH ago Brent crude oil stood at around $96 a barrel and Hosni Mubarak was ensconced as Egypt’s ruler. Now he is gone, overthrown by a display of people power that is shaking autocratic leaders across north Africa and the Middle East. And oil has surged above $115. Little wonder. The region provides 35% of the world’s oil. Libya, the scene of growing violence this week, produces 1.7m of the world’s 88m barrels a day (b/d).

So far prices have not been pushed up by actual disruptions to supply. Oil hit a peak even before news emerged that some foreign oil firms operating in Libya would cut production and that the country’s ports had temporarily closed. As Adam Sieminski at Deutsche Bank points out, oil prices are driven both by current conditions and by future expectations.

Oil markets don’t like surprises. The sudden ousting of Mr Mubarak and the unrest in Libya, Bahrain, Yemen, Iran and Algeria (which between them supply a tenth of the world’s oil) had added 20% to oil prices by the middle of this week. The big worry is that spreading unrest will culminate in another shock akin to the oil embargo of 1973, the Iranian revolution or Iraq’s invasion of Kuwait.

. March 18, 2011 at 11:27 pm

Oil and the economy
The 2011 oil shock
More of a threat to the world economy than investors seem to think

Mar 3rd 2011 | from the print edition

THE price of oil has had an unnerving ability to blow up the world economy, and the Middle East has often provided the spark. The Arab oil embargo of 1973, the Iranian revolution in 1978-79 and Saddam Hussein’s invasion of Kuwait in 1990 are all painful reminders of how the region’s combustible mix of geopolitics and geology can wreak havoc. With protests cascading across Arabia, is the world in for another oil shock?

There are good reasons to worry. The Middle East and north Africa produce more than one-third of the world’s oil. Libya’s turmoil shows that a revolution can quickly disrupt oil supply. Even while Muammar Qaddafi hangs on with delusional determination and Western countries debate whether to enforce a no-fly zone (see article), Libya’s oil output has halved, as foreign workers flee and the country fragments. The spread of unrest across the region threatens wider disruption.

Leave a Comment

Previous post:

Next post: