Soaring oil prices

Posted: April 22, 2008 in environment, society
Tags: , , ,

The West goes into recession, the East keeps growing and the planet suffers ever more. Oil prices are moving towards (and soon past) US$120 a barrel in New York, despite America going deeper into an economic downturn. Air conditioners in Dubai and other rich Middle-Eastern Countries as well as growing consumer appetites in China, Russia and India are leading to a growing demand for oil in a tightening market. Those countries together for the first time will consume more crude than the US.

According to the International Energy Agency, they will burn 20.67 million barrels a day this year (a 4.4% increase) while the US demand will contract to 20.38 million barrels daily. World oil use will rise by 2% in 2008, largely driven by economic growth of more than 8% in both China and India. Both countries combined have a population of 2.5 billion, and while their rising middle class numbers might be small in percentage terms, their demands for more and more cars is immense (and unsustainable) in absolute terms.

Like in the West, people in the East seem to be willing to absorb price rises for crude oil. Last week they rose 6% (the biggest weekly gain since February 2007), and they are up 77% from a year ago. Jeffrey Rubin, chief economist at CIBC World Markets in Toronto sees the US downturn as just a footnote as far as the oil markets are concerned. Rubin, who has correctly forecast higher oil prices since 2000, predicts the crude price will average at US$120 a barrel this year and rise to US$150 by the end of the decade.

The problem is that China and India are emerging markets with lots of room for growth in relation to oil demand. Crude consumption will rise in both countries by 4.7% this year. China currently is the world’s second biggest energy user and will consume 7.89 million barrels a day while India is looking at 2.92 million barrels this year – that is more than Venezuela’s output. And to get an idea of the potential growth in these two emerging markets: the 2.45 billion people in China and India used ‘only’ half as much crude oil last year than the 301 million Americans. Translated into car sales: they rose in China 22% to 6.3 million last year and could rise to 7.3 million this year.

The madness goes on and the planet keeps suffering. And who is the planet? We and our environment. Hard to believe that we are aware of the facts or at least the dangers yet we just can’t stop being on a roll.

[source: Sydney Morning Herald]

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