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The Price of Oil Breaks the 0 Mark

by Joachim Bischoff Wednesday, Jan. 16, 2008 at 12:46 PM

There is no chance that the average price per barrel will fall under up to 2015. This was not inevitable Since the first oil price shocks in the 1970s, many measures were possible to throttle the consumption of oil and energy. In Europe, the oil consumption has fallen 30-40 percent since the 1970s.


By Joachim Bischoff

[This article published in: Sozialismus, 1/3/2008 is translated from the German on the World Wide Web,]

The price of crude oil has hit a new record. The price for a barrel of crude oil surpassed the 0 mark for the first time at the beginning of 2008. Within the last 12 months, this price has risen 60%. According to experts, the delicate geopolitical situation is mainly responsible for the price leap. Observers mentioned the unrest in Nigeria, Kenya and Pakistan as driving forces.

Firstly, the uncertain situation in Africa has contributed greatly to the record price for oil. Nigeria is the eighth largest oil exporter of the world. The tensions there foment the fear about supply shortages. Secondly, the continuing crisis between Turkey and the Kurds in northern Iraq has driven up the price.

In price formation, fossil sources of energy are certainly subject to the capitalist exploitation logic and also react to political-military tensions. Since oil and natural gas become scarce commodities because capital accumulation is inconceivable without fossil sources of energy and energy alternatives are hardly developed, actual or threatening conflicts influence their price development.

The dollar weakness is another important factor of the price development. Given the continuing mortgage- and credit crisis, the future prospects of the US economy are cloudy or dismal. The continuing nervousness on the finance markets also contributes to a speculative movement on the raw material markets.

The real economic background of the current price explosion is the chronic shortage constellation. According to calculations of the information agency of the US Department of Energy, the third quarter of 2007 saw a demand of 85.6 million barrels per day compared with a supply of 84.5 million barrels. The difference amounts to more than a million barrels. In this context, the OPEC oil cartel announced an increased output of 500,000 barrels. This expansion is not enough to cover the demand.

The oil supply remains tense and political-military shifts in production regions or in important transport-stations force up the price again. On principle, the supply gap could be closed by increasing output. However unlike the 1970s we do not face a politically motivated supply shortage. Rather the economic constellation points to a peak of oil production that will be reached in the near future.

Explaining the high oil- and gas prices with threatened military conflicts is extremely one-sided because we have been in a constellation of shortage of oil supply with simultaneous expansion of oil demand for decades. The term contracts speak a clear language. There is no chance that the average price per barrel will fall under up to 2015 according to the delivery commitments (futures) extending far in the future.

The energy expert of the DIW, Claudia Kemfert, assumes that the global economy is at the beginning of a clear increase in the price of energy. “The oil reserves are becoming increasingly scarce. This will drive up the prices again. In five years, an oil price of 0 is likely and a price of 0 in ten years, the DIW-expert said.

With global motorization, the consumption of crude oil has risen enormously. Exceeding the peak of oil production marks the end of the fossil energy system. The time period for secure oil- and natural gas reserves is estimated at 40 years according to the current consumptions structure. The oil reserves in the US could last 20 to 30 years.

This was not inevitable. Since the first oil price shock in the 1970s, many measures were possible to throttle the consumption of oil and energy. In Europe, for example, the oil consumption per unit of gross domestic product has fallen 30-40 percent since the 1970s. This is true both for private households and for industry. The savings measures in the US, the largest economy of the world, were much less clear.

Conversely the threshold countries massively increase their energy consumption. For the developed threshold countries, the International Energy Agency (IEA) expects an increased primary energy consumption (crude oil, coal and natural gas) of 55% up to 2030. The energy hunger of China and India will account for 45% of this expanded consumption.

On the other side, the high energy price could also trigger an expansion of the supply. The higher the price of oil, the higher the capital expense for energy production. Difficultly accessible or less economical oil- and natural gas deposits will be opened up.

In its 1972 report, the “Club of Rome” called attention to the limits of economic growth resulting from the limitation of energetic resources. The thesis of the limitation of resources was certainly badly established at that time. No change in the trend of resource consumption has occurred. Worldwide there is no development pointing to a possible oil-free economic growth despite increased efforts in many parts of the world.

The destructive consequences of the fossil energy system for all living conditions underscore the necessity of a change of course. The energy stored in the fossil resources is transformed by technological systems into work energy with whose help a broad palette of practical articles is produced to satisfy individual and social needs. At the same time, combustion products and their emissions have damaged the ecological systems in the last decades.

The themes of social debates result from these destructive consequences of the fossil energy system: greenhouse effect, climate change, destruction of the tropical rainforests, loss of biodiversity etc. Ecologists like Mike Davis emphasize that the blazes in the Middle East or in California, the bursting of the dams in New Orleans etc. are seldom set in the context of the fossil energy system.

In the present environmental agreement, the Kyoto protocol aiming at combating global warming and influencing the world climate, the strategy of reducing resource consumption, raising energy efficiency and avoiding dangerous emissions is pursued. These are undoubtedly important beginnings. Efforts at a transition to a different, qualitatively changed mix of sources of energy must be encouraged given the limitation of fossil energy resources and continuing emissions.

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