Location: HomeMediaNews room135 and rising...has cheap oil gone for ever?

135 and rising ... has cheap oil gone for ever?

Source: The Guardian

Consumers feel the pinch as analysts predict crude may reach $150 a barrel. Although oil ended yesterday at $132 a barrel, forecasts that crude could soon be changing hands for $150 or even $200 also conjured up images of what life might be like once the cheap oil that has been crucial to the development of modern industrial societies, and is used for everything from food packaging to tourism, runs out.

For the past 10 years or more, the leaders of the G8 countries have concentrated on the problems of the developing world when they gather for their annual summer summit. This year Brown wants oil to be at the top of the agenda and, with every other member apart from oil rich Russia feeling the pinch, he is unlikely to face much opposition. Oil prices are more than six times higher than they were in early 2002, and it took only a fourfold increase in 1973 and 1974 to bring the west's long postwar boom to a shuddering halt. This is the fourth time that oil prices have soared in the past 35 years; on the previous three occasions dearer energy has meant recession.

Graham Turner, of London-based consultancy GFC Economics, said: "Oil prices are on a moon-shoot, with peak oil and a global shortage taking centre stage. Many of the concerns about long term supplies are valid and it is impossible to know how far prices will climb in the coming weeks and months. However, if calls for $150 per barrel are realised by the summer, it will do little to help a world economy struggling with a slide in housing markets across much of the industrialised west."

In the medium to long term, Brown believes that high oil prices mean Britain has to look at energy efficiency and diversifying supply. With the oil futures markets indicating that prices will stay at current levels - or even rise - between now and 2015, the economics of alternative sources of energy - including coal and renewables - changes. But in the short term the prime minister's solution has been to turn up the heat on Opec, which last week was threatening to regain the bogeyman status it had in the 1970s. Brown said: "It is, as people will recognise, a scandal that 40% of the oil is controlled by Opec, that their decisions can restrict the supply of oil to the rest of the world, and that at a time when oil is desperately needed and supply needs to expand, that Opec can withhold supply from the market."

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