Getting impatient with the stock price of your oil producers? Maybe the best plan is to just sit on them for the next decade..........
AS THE developed-world economy tries to gain momentum, it faces a persistent headwind. The oil price remains stubbornly over $100 a barrel, acting like a tax on Western consumers. Some blame the high price on evil speculators—Barack Obama unveiled plans to increase penalties for market manipulation on April 17th. But there is a simpler explanation: that supply is inadequate to keep up with rising demand.
The concept of peak oil—the idea that global crude production may be at, or close to, its limit—is far from universally accepted. One leading asset manager talked recently of the world being “awash with energy” because of the exploitation of American shale gas. Nevertheless, oil is still the main fuel for cars and trucks. And crude output (as opposed to alternatives such as biofuels and liquids made from gas) has been flat since 2005.
A number of countries (including Britain, Egypt and Indonesia) have turned from net oil exporters into importers in recent years. And although rich countries have curbed their energy-guzzling a little, demand continues to surge in emerging markets.
This has left the oil market very vulnerable to temporary supply disruptions, such as the war in Libya. Speaking at a conference in Dublin this week, organised by the Institute of International and European Affairs and the Association for the Study of Peak Oil and Gas, Chris Skrebowski, a consulting editor of Petroleum Review, argued that spare capacity in the oil market could be eroded by 2015.
The peak-oil concept was devised by the late M. King Hubbert, who correctly predicted in 1956 that oil output in the lower 48 states of America would peak by around 1970. At the conference Michael Kumhof, an economist at the International Monetary Fund, presented the findings of a forthcoming working paper which showed that adding the idea of a “Hubbert peak” to energy production greatly improved the ability of a model to forecast oil prices. Based on an expected 0.9% annual increase in production over the next decade, the model predicts that real oil prices will nearly double over the same period.