Is the car’s petrol tank half full or half empty? We are all worrying about the price of fuel, and not just for the obvious reason of the sharp pain in the wallet when filling up.
What seems to be the only safe assumption is that fuel will remain expensive for the foreseeable future. Here in Britain, we are to some extent protected by the strength of sterling. In dollar terms, the crude oil price has risen past the peak it reached during the first Gulf War, but in sterling terms it is still a touch cheaper. And in real terms – that is, adjusted for the decline in the value of money – we are only about half the level of the late 1970s peak.
That is the half-full perspective. The half-empty one is the growing awareness that the underlying supply-demand balance is less favourable than it was during previous oil price peaks. In the two 1970s oil shocks, the price was pushed up by Opec restricting supply. In the early 1990s it was the war. But now Opec seems to be pumping as much as it can, and demand, thanks in part to Chinese growth, keeps rising.
Opec’s output in July seems to have been slightly down from the June level, mainly because of a decline in output from Saudi Arabia. It is not clear why this has happened, as the Saudis have pledged to increase supply rather than cut back. But it has given rise to new concerns that the country is struggling to increase output for technical reasons, mostly to do with the giant Ghawar field, the largest in the world. Incidentally, the world’s second-largest field, the Cantarell in Mexico, is now producing less than it was a couple of years ago and may be starting its own decline.
Without being too alarmist about all this, oil experts are beginning to worry that global oil production may be starting to approach its peak, for all the newly discovered fields around the world are much smaller than these giants. The only safe assumption is that the global oil supply will remain extremely tight from now on – and tight for technical reasons, not for political ones.
Most of the price of fuel in the tank is tax, of course, so it would be perfectly possible for governments to offset the rise in the price of crude by cutting tax. Somehow, though, I don’t think this is going to happen.
