The world quakes as oil goes through $100
The price of oil is going up. World events are conspiring to make this basic commodity ever more expensive. And this will affect us all.
For the first time in two years the oil price broke through $100 a barrel yesterday. Oil traders were reacting to fears that the turmoil in Egypt would interrupt the supply of oil to the world at a time when there is very little spare capacity and phenomenal global demand.
Traders' fears are based on two main factors. The most important is that the political unrest in Egypt could start a revolution in its neighbour, Saudi Arabia, the world's biggest oil producer, a nation with a massive youth population (6 out of 10 Saudis are under 40) and a highly authoritarian, small and geriatric circle of rulers. Many young Saudis will surely be looking across to Egypt and wondering if a peaceful uprising could give them more freedom.
Secondly they fear an interruption of the flow of oil both through Egypt's Suez Canal, which allows sea traffic between Asia and Europe without having to take a hugely expensive 6,000-mile detour round the bottom of Africa, and through the giant Sumed pipeline that links the Red Sea with the Mediterranean.
Making things worse is booming demand in West Africa and Asia as their economies expand, meaning there is less oil to go round. The International Energy Agency estimates world oil demand this year to reach a new record of 89 million barrels a day. But world supply is only 88 million barrels a day and increasing the supply is not easy.
The Agency says that all the world's 'easy oil' is gone and that the only new oil now must be extracted using expensive, difficult and high-tech techniques that will make oil more expensive still.
Why does the oil price matter? After all, $100 is not a world record – that was reached in July 2008 when prices briefly hit $147 a barrel before plunging again to around $30.
The answer is that nearly everything in our lives (such as cameras, food packaging, shampoo and bin bags to name a few) is made from oil, made by machinery dependent upon oil or transported by oil. So the price of oil affects the price of everything, not just petrol.
Many serious economists say we are entering a grim two-year period during which rising prices, taxes and interest rates will leave us all feeling a lot poorer, while unemployment rises and many struggle to get by.
The Prime Minister, David Cameron, however, has just made a speech in Switzerland saying the worst would be over by next month when he will announce a 'budget for growth' and the economic recovery can begin.
- 'It's time we became independent from oil.' Is this possible?
- 'We should send the army to the Suez to protect the supply lines. Where would we be without oil?' Discuss.
- You work at a petrol station. A driver is having a go at you about the cost of petrol at the pumps. Are you able to explain why it's not your fault? Jot down some of your ideas.
- Research the alternatives to oil, and make your recommendations to the government in a short piece called 'Our Energy Future'.
Some People Say...
“The more expensive the oil the better! We shouldn't be using it anyway.”
What do you think?
Q & A
- So what can we do?
- In one sense, nothing. While we're dependent on oil, we have to roll with the economic punches.
- And in another sense?
- Well, price rises can focus our attention on a world less dependent on oil. Environmental groups have been saying for a long time that we need an alternative when the oil runs out.
- Will that happen?
- Probably not, but it may be that oil becomes too expensive to compete with other fuels. As Amory Lovins said, 'The Stone Age didn't end because stone ran out, and the Oil Age will be just the same.'A Coal is environmentally messy and though nuclear power is cleaner, it's also more dangerous – think of Chernobyl. Obviously there are the renewable fuels like wind, wave and solar power. And of course the '5th fuel' – energy conservation.