It also confirms that peak oil pundits like Canadian economist Jeff Rubin, and Richard Heinberg and dozens of others, have been uncannily accurate.
This is a précis of Jeff Rubin’s recent article.
- oil was already at $US100 a barrel BEFORE the unrest in Egypt
- these are the kind of prices that one might expect to encounter at the end of an economic cycle, not at the beginning of one.
- world oil demand grew almost twice as fast as the oil experts at the International Energy Agency were expecting.
- serious doubts exist as to whether the world can produce another two million barrels a day of new supply to meet another year of demand growth – in addition to the nearly four million barrels a day of new production that must be brought on simply to replace what is lost every year in depletion.
- these were troubling issues before the chaos began sweeping through the Middle East and North Africa. Now it’s even less certain how supply will match demand.
- the region of the world that was expected to pump that additional oil supply, utilizing its supposedly ample spare capacity, is now falling into anarchy.
- this supposed official spare capacity hasn’t existed for years. Wikileaks cables confirm what peak oil pundits have been saying for years - Saudi Arabia, OPEC’s biggest producer, and the country holding the world’s largest oil reserves, has little more to give.
- instead of the 12 million to 12.5 million barrels a day of official capacity, Saudi Arabia is barely able to pump out between 8 million and 9 million
- consider former president George W. Bush’s desperate pilgrimage to the kingdom in 2008, during the height of the last oil crisis. This was able to elicit only a token 300,000-barrel-a-day increase in production, in spite of record high prices.
- the Saudis still has the capacity to raise oil prices should it withhold supply.
- but the Saudis no longer has the capacity it once did to prevent prices from rising, because it can no longer boost its production to meet increases in world demand.
- nor does Saudi Arabia have spare capacity to make up for supply disruptions in neighbouring Arab countries such as Libya, Algeria or Egypt.
- supply disruption in the region could easily see prices spike and test the $147-a-barrel mark set in 2008, just before the crippling global recession
- the real danger from the Middle East is not the risk of temporary supply disruptions, or the speculative betting that it will encourage.
- the real danger is that we lose sight of the levels that oil prices had climbed to even before this latest crisis began, and the basic supply-and-demand forces that pushed them there.