The Inquirer, in its usual alarmist fashion, carried the headline “No Stopping Oil Price Rise”. In its report, Energy Secretary Angelo Reyes called on the public Thursday to brace themselves for still higher fuel prices as world oil jumped to record highs above $135 amid fears about tight energy supplies, rising global demand and a dropping dollar.
“This is the reality that we must face and act on,” Reyes said, citing a forecast by investment bank Goldman Sachs that oil prices would average $141 a barrel in the second half of this year and could top $200 a barrel by 2010.
OPEC President Chakib Khelil weighed in with his prediction that, indeed, US$200 crude will be a reality in 2010, if not sooner.
The scrapping of import duties on crude and refined oil products effective June 1 will have minimal impact, a reduction of 35-50 centavos per liter at the pump, and will hardly be felt by consumers. Gasoline and diesel prices are going up by P1.00/liter weekly, with no immediate end in sight.
This is bad news. But there’s worse to come. This could spell the end of the world as we know it, according to certain prophets of doom. The scary thing is, they have both numbers and history on their side.
Stephen Leeb, an American investment fund manager who predicted in 2004 that oil would reach US$100 a barrel before the end of the decade, now presents an even grimmer scenario. Not only did Leeb’s prediction come true about two years early, the price of oil rose way beyond his initial prognosis. He predicts oil will soon top $200 a barrel and touch off hyperinflation, double-digit interest rates and a cascading collapse of the world economy.
In Leeb’s view, the world’s supply of oil may have already peaked and is now declining. The resulting shortage will be exacerbated by demand from monstrously energy-hungry growing economies such as China and India, which Leeb calls by a term increasingly gaining popular currency, “Chindia” . According to Leeb:
With a growth rate that is two to three times higher than the United States, Chindia will likely surpass the United States in consumption before the end of the decade.
This means less oil for those of us who can’t afford what the big boys are willing to pay. Productivity will suffer as our oil bill rises to stratospheric levels. We’ll be sending more people (our most valuable and competitive resource) abroad to earn the dollars (or euros) we need to buy oil. Of course, rising energy costs will drive inflation up, particularly affecting food prices. We’ll be stuck in a vicious cycle as we consume what we earn, with little or no surplus at the end of the day.
Awash in cash, new petropowers like Russia and oil populists like Hugo Chavez’ Venezuela will use their new- found wealth to push their own economic and political agenda, further fueling global instability.
According to Thomas Friedman, the rise of a collection of petro-authoritarian states – from Russia to Venezuela to Iran – are reshaping global politics in their own image. And there’s always OPEC. Says Friedman:
If this huge transfer of wealth to the petro-authoritarians continues, power will follow. According to Congressional testimony Wednesday by the energy expert Gal Luft, with oil at $200 a barrel, OPEC could “potentially buy Bank of America in one month worth of production, Apple computers in a week and General Motors in just three days.
And this could spell the end of the “flat” world Mr. Friedman so convincingly envisioned. As pointed out in a recent issue of Newsweek:
A quick doubling in oil prices could spell the end of the globalized “flat” world that had seemed so inevitable to enthusiasts and skeptics alike. According to Jeff Rubin, chief economist at Canada’s CIBC, oil-price hikes work just like a “tariff” on trade. Already, he says, oil at $100 has added enough to the cost of shipping to wipe out 45 years’ worth of tariff reductions that have lowered borders to trade and allowed India, China and other countries to boom. If oil hits $200, Rubin says, energy and transport costs could start displacing labor costs as the chief factor determining where (or even if) companies base offshore production. With oil at $200, it would cost $10,000 more to send a 40-foot shipping container to the Eastern United States from China, rather than from Mexico. As a result, China would start looking more to customers in Japan than in the United States. Western Europe would turn to Eastern Europe, and regionalization would be the new globalization. And that’s just one possible shock.
Will it really be as bleak as this ? Maybe not.
There’s always the “faith-based” idea that somehow more oil will be found. And people are nothing if not inventive, necessity being the mother of invention. Over time, the market will direct companies and entire countries to invest in new, more efficient technologies and to discover, develop and shift to alternative fuels.
Attitudes will change, by sheer force of necessity. We will drive smaller cars, develop and use more fuel-efficient modes of public transport, be conscious of and regulate our consumption. We will adapt or die. Its a safe bet that we won’t die.
The upside of this is that by burning lesser fossil fuels and reducing our carbon footprint, whether intended or not, we may just save the environment from further destruction. By seeming accident, we would have collectively addressed the problem of global warming.
An analyst at Goldman Sachs, Arjun N. Murti, foresees a “super spike” – a price surge that will soon drive crude oil to $200 a barrel. Mr. Murti has become the talk of the oil market by issuing one sensational forecast after another. A few years ago, rivals scoffed when he predicted oil would breach $100 a barrel. Few are laughing now.
Dr. Cielito Habito, former NEDA Director, looks at the oil crisis and asks if we’re ready for US$200 crude.
Paul Krugman explains it’s not speculators driving up the price of oil but a simple case of demand exceeding supply.
Filipino onsumers will have to deal with weekly fuel price increases of P1.50 a liter that started on Saturday, May 31, as oil firms scramble to recover losses resulting from skyrocketing crude prices in the world market. This will likely drive the price of gasoline to a record P65 a liter. According to an unnamed oil firm executive:
Under-recoveries [the amount that oil firms need to recoup] have soared … There’s really no relief in sight. Consumers will have to bear weekly increases, most likely by P1.50 a liter.
Newsweek does a cover story on the coming energy wars when oil hits $200 a barrel, and how this will change our world, for good or ill.