As oil protests spread, as motorists grimace and groan on
each visit to the pumps, as prices jerk upwards, analysts as
well as ordinary members of the populace are asking
questions.
What and who is to blame for such rapid increases? When will
it stop? What will a future with supersonic oil prices look
like? As commodity and food costs climb, and as environment
degradation spreads, is the golden weather of growth and
rising prosperity over?
While laws of supply and demand are widely accepted as the
basic reason prices are rising, especially because China and
India are quickly moving towards the front-row of the grid of
world oil consumers, "speculators" are often blamed for the
size and volatility of recent leaps.
The money invested in commodity funds has soared from $US13
billion five years ago to $US260 billion now, with most (78%)
of this in oil.
Index and pension funds on the New York energy exchange are
buying and selling oil for financial gains, certainly not for
their own direct use.
Those funds have been moving away from sharemarkets - and
towards commodities like oil and gold - because of poor share
returns during the past two years.
Surely, like the 1637 Dutch tulip bubble, the 1720 South Sea
bubble, the 2000 dot-com bubble or the various housing and
stock market booms and crashes, the doubling of the oil price
in a year (10 times what it was in the late 1990s) is
indicative of more than just market fundamentals.
Surely, despite the likelihood of a long-term upward price
path, speculation is behind extraordinary price hikes. Many
other analysts, though, argue that these speculative prices
simply reflect the way a short-supplied market can work.
The so-called oil futures speculators are not actually
hoarding oil to create artificial increases, and plenty of
willing buyers remain for the oil itself. Take your pick on
the various explanations.
There are those who blame various geopolitical causes, the
tensions between the United States and its big
anti-capitalist supplier Venezuela, the regular bombs and
kidnappings in Nigeria, the Middle Eastern difficulties. The
weak US dollar, the currency of oil trading, and the grouping
of oil exporters Opec, the bogeymen of the 1973 and 1980 oil
shocks, receive blame as well.
Then there is everyone's favourite, the oil companies, which
have been making record profits. United States regulators
have spread their investigations beyond speculators to the
refining, transportation and storage of oil.
The causes of the magnitude of the sudden price increase have
relevance because if speculators are indeed responsible, then
the price could collapse suddenly - not to what recently was
thought expensive at $30 a barrel but low enough to make
risky and costly oil recovery uneconomic.
Because of that possibility, long-term planning, oil
exploration and development and the creation of expensive
alternatives to oil are discouraged.
Individuals, companies and nations - including New Zealand on
some of its "think-big" projects - lost badly when they
reacted intemperately to the earlier oil crises.
Nevertheless, one positive outcome of the rapid rises has
been to jolt common thinking to look towards new futures.The
idea of peak oil has become mainstream, even if the timing of
it is debatable.
Just as the earlier oil shocks led to the widespread
abandonment of oil as a power station feedstock, so the
present rises are already leading to overdue changes.
Countries in Asia are beginning to abandon wasteful oil
subsidies, consumers in the West are examining their
practices and momentum is building towards a new future less
dependent on the oil addiction. Given the perils of potential
climate change, these types of responses are urgently needed.
The present price shock is, in fact, doing much more than
carbon taxes, emissions trading schemes or propaganda in
changing habits and turning people towards shades of green.
Finally, after decades of promise, impetus might even be
building to wrest oil's virtual monopoly on transportation.
