Oil and Turm-oil

Much of the world is holding its breath because of turmoil in the Middle East. 

 Some are worried about where this will leave Israel and others about where the United States will find military bases in the region. But most of us are anxious about what the present turmoil might do to world oil prices and how that will affect our lives. For the most part oil markets have not yet panicked, but even so prices of crude have climbed into three-digit territory. But where to from here?

Even before the present political turm-oil began in the Middle East, the situation was tenuous. Many analysts are of the opinion that world oil production peaked somewhere around 2005 and that it is now in steady decline. This, they say, has set off a predictable pattern. Oil prices rise to the point where a global recession sets in, then decline follows, reflecting lower demands. Lower oil prices stimulate the economy, which is then followed by rising oil prices. The cycle repeats itself. Over and over. It is called the “Bumpy Plateau.”

So as we began climbing out of our world recession last year, China alone added a million barrels of oil a day to its demand. Two million extra barrels were demanded globally. That does not take into account the four million barrels of oil lost every year as oil wells dry up. So that means we need six million new barrels of oil in one year. Where will it come from?

Traditionally, the calming answer has come from Saudi Arabia, which officially declares that it can easily increase production to cover global shortfalls. While claiming it can pump at least 12 million barrels a day – 4 million more than now – it is becoming increasingly clear that such a claim is not based on fact. Cables from the U.S. embassy in Riyadh, recently released by Wikileaks, confirm what many have thought for a long time: Saudi Arabia has little more to give besides rhetoric.

Even a few weeks ago many analysts were betting that political unrest in the Middle East would not touch the major oil producing countries in the region. Now they are not so sure. So instead of limping along on that “Bumpy Plateau,” there is a real possibility of major oil shortages just around the corner. And this, of course, would mean higher prices. Some are predicting $200 a barrel. Some double that.

Whatever the case, it appears certain that there will be no safe havens left in the near future where life can continue on as usual based on relatively cheap and abundant oil supplies.

Most people will not consider a paradigm shift toward lower energy consumption until it hits them hard in their pocket books. Well, that is likely to happen sooner than we had anticipated. While that will create tremendous hardships in the short run, we can be optimistic that in the long run it will leave us and our planet in better shape.

Jack Heppner