Oil prices were rising steeply before the unrest in the Middle East

Here is the best analysis I have found about what’s been happening on the global oil scene.

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.