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Rising Demand for Oil Provokes New Energy Crisis

Jad Mouawad, New York Times
With oil prices approaching the symbolic threshold of $100 a barrel, the world is headed toward its third energy shock in a generation. But today’s surge is fundamentally different from the previous oil crises, with broad and longer-lasting global implications.

…Unlike past oil shocks, which were caused by sudden interruptions in exports from the Middle East, this time prices have been rising steadily as demand for gasoline grows in developed countries, as hundreds of millions of Chinese and Indians climb out of poverty and as other developing economies grow at a sizzling pace.

“This is the world’s first demand-led energy shock,” said Lawrence Goldstein, an economist at the Energy Policy Research Foundation of Washington.

Forecasts of future oil prices range widely. Some analysts see them falling next year to $75, or even lower, while a few project $120 oil. Virtually no one foresees a return to the $20 oil of a decade ago, meaning consumers should brace for an era of significantly higher fuel costs.

At the root of the stunning rise in the price of oil, up 56 percent this year and 365 percent in a decade, is a positive development: an unprecedented boom in the world economy.

Demand from China and India alone is expected to double in the next two decades as their economies continue to expand, with people there buying more cars and moving to cities to seek a way of life long taken for granted in the West.

…“The concern today is over how will the energy sector meet the anticipated growth in demand over the longer term,” said Linda Z. Cook, a board member of Royal Dutch Shell, the big oil company. “Energy demand is increasing at a rate we’ve not seen before. On the supply side, we’re seeing it is struggling to keep up. That’s the energy challenge.”
(9 November 2007)
Appeared on the front page of the print edition. No mention of dwindling supplies as a cause. -BA

Plunge from the pump

Paul Larter, The Bulletin (Australia)
Rising oil prices have triggered a ripple effect that is changing our lifestyle – from grocery shopping to the traditional Aussie holiday.

The galling thing is that a humble number embodies such power. That this fickle master reaches into every aspect of our lives, giving and taking from our hip pocket at whim. It decides how we travel, adds to our soaring grocery bills and will play a part in deciding the next prime minister. Worst of all, like portraits of Stalinist dictators, it’s inescapable – on every roadside, in almost every suburb, in every town in the nation.

Maybe you’ve never thought of your local petrol station that way, let alone the bloke who takes abuse from behind the chewing gum. But the message from atop its bold, illuminated signpost is as powerful as ever.

“Every time petrol prices increase, there is almost an audible gasp from middle Australia,” says Bernard Salt, a partner at KPMG and renowned business adviser and demographer. “It’s because petrol prices are so transparent. The number is etched before you every time you go to work and come home from work. It’s out there, emblazoned on big placards. There’s no escaping what those big numbers are.”

Cue the Aussie dollar. Now riding above US90c, it has been the protector against punishing rises at the bowser this year, with US oil soaring to a record high above $US96 ($103.55) a barrel last week. This dragged Singaporean unleaded petrol, an indicator of Australian pump prices, to a record high and put the US crude price within sight of the inflation-adjusted equivalent of the 1979-80 oil shock of $US101.70 a barrel. Now there is a buzz in the air of some rarefied London and New York trading rooms of oil far in excess of that figure.
(8 November 2007)
Contributor Stuart McCarthy writes:
An excellent article in Australia’s leading weekly news magazine. See also the accompanying story “Rate rise hits burbs the hardest”

Rising cost of oil threatens vulnerable economy

John W. Schoen, MSNBC
Despite brief pauses, crude oil prices have risen relentlessly since May, as a strong global economy continues to burn through supplies as quickly as producers can replace them. A falling U.S. currency, meanwhile, has increased the price in dollar terms and stoked buying by investors looking for a place to hedge the dollar’s decline.

As a result, the short-term peak price is anybody’s — and everybody’s — bet.

“I think that $100 a barrel for oil is going to be near the peak for oil in the near term,” said Sam Stovall, chief investment strategist at Standard & Poor’s. With prices heading nearly “straight up, our feeling is that’s not sustainable. We could see oil come down to $75 or $70 per barrel level.”

But so far, oil contracts on the futures markets have taken on the momentum of a runaway tanker car.

…Buyers of oil are worried about more than the falling dollar. Until earlier this decade, global oil production capacity included a bit of slack, most of it controlled by the Organization of Petroleum Exporting Countries, which tried to manage prices — with mixed success — by increasing or withholding production. That supply cushion has been all but eliminated as global demand, fueled by rapidly growing economies, has risen faster than new supplies are found and developed.

..But oil prices aren’t the only cloud on the economic horizon. The ongoing slump in housing, along with continued uncertainty about rising mortgage default and foreclosures, could have a more serious impact. Most U.S. recessions since World War II have been lead by housing downturns, and the current slump is the deepest in decades. If the housing market continues to worsen, higher energy prices would only add to the headwinds faced U.S. businesses and consumers.
(9 November 2007)
Journalist John W. Schoen, a producer at MSNBC, has written before about peak oil, but he didn’t mention it in this article. -BA

The Empty Threat Of $100 Oil

Paul Maidment, Forbes
It doesn’t much matter to the world economy if a barrel of crude oil sells for $101 or for $99, but there is shock value to the headline of $100 oil.

It doesn’t even matter overly much if that barrel is selling for $80 rather than $100. The rule of thumb is that every 10% rise in the price of oil cuts global economic growth by a third of a percentage point over the following year. So if oil is at $100 a barrel in 2008 rather than $80, the projected global GDP growth rate of 5.2% would be cut to 4.4%. A hit to growth, yes, but not a plunge into recession.

… oil hasn’t risen as much to some as it has for Americans. The recent fall of the dollar is in itself one of the reasons that oil is selling today for what it does: The dollar price of oil may have risen 30% since August, but it is up only 21% in euro terms.

It is not only the value of the dollar that has changed. In the past 35 years, technology and the shifting patterns of global industrialization have helped the world and its largest oil consumer, the U.S., wring more economic growth from each barrel of oil consumed.

Part of that is conservation and the development of more energy-efficient technologies. Part is the structural change in developed economies from being driven by manufacturing to being driven by services and information technology (though don’t ever underestimate how much power a data center can chew up). Those countries no longer have as many energy-guzzling factories and mills.

Much rich-country manufacturing has relocated to developing economies like China. It is China’s voracious appetite for energy to power its fast-growing economy that is the swing factor for oil prices.
(7 November 2007)

Offshore discovery could make Brazil major oil exporter

Alan Clendenning, Associated Press
SAO PAULO, Brazil — A monster offshore oil discovery could help Brazil join the ranks of the world’s major exporters, but full-scale extraction is unlikely until 2013 and will be very expensive.

The “ultra-deep” Tupi field off the coast of Rio de Janeiro could hold as much as 8 billion barrels of recoverable light crude, and initial production should exceed 100,000 barrels daily, says Guilherme Estrella, exploration and production director of Brazilian state oil company Petroleo Brasileiro (PBR).
(9 November 2007)