David Strahan: Have we reached the end of the road for oil?

Graeme writes:

Petrol prices are set to fall this autumn, but David Strahan argues that oil is now so scarce that it may never be affordable again

With the oil price apparently in full retreat, it is tempting to breathe a sigh of relief. After soaring to an all-time high of more than $147 a barrel in mid-July, the cost of crude has dropped by nearly $30 in the last four weeks. Although the price is still more than 10 times higher than a decade ago, some analysts are now talking of a "tipping point", predicting a continued slide to $90 a barrel.

So why has a commodity that until recently seemed like a one-way bet suddenly gone into reverse? And having helped push the economy to the brink of recession, is the oil shock over, or merely in remission?


...Contrary to the sanguine view put forward by Martin Vander Weyer in these pages yesterday, the facts are stark: the world has been discovering less for the last 40 years; for every barrel we discover we consume three; output is in terminal decline in 60 of the 98 oil-producing countries; and hundreds of billions of dollars in investment since the turn of the century have failed to stem declining production at many of the world's biggest oil companies.

As a result, it is widely agreed that oil production in the non-Opec world will "peak" - reach its maximum possible level - within two years, if it has not already done so. This means that the huge profits being made by multi-nationals such as Shell or ExxonMobil may turn out to be their last hurrah. "The days of the international oil companies are coming to a glorious end," said Fatih Birol, chief economist of the International Energy Agency, last month. "Their reserves are declining and they will have difficulty accessing new ones."

Unfortunately, this means that the global oil supply will soon depend on Opec as never before. Many analysts suspect that the Opec countries, which claim to hold three quarters of known reserves, have been exaggerating their size for decades - in other words, they too will soon reach the physical limits of production.

U.S. caught in middle of spat

Oil and geography: Russia-Georgia fight puts Bush in tough spot.

There's more than meets the eye to the frantic U.S. efforts Friday to talk Russia and U.S. ally Georgia out of war over an obscure mountain tract most Americans have never heard of.

A look at the map and your gas credit card bill shows why.


South Ossetia is claimed by Georgia, the former Soviet republic that cast its lot with the United States and the West to the eternal irritation of Moscow. The breakaway province has been under Russia's sway for years.

Georgia sits in a tough neighborhood, shoulder to shoulder with huge Russia, not far from Iran, and astride one of the most important crossroads for the emerging wealth of the rich Caspian Sea region. A U.S.-backed oil pipeline runs through Georgia, allowing the West to reduce its reliance on Middle Eastern oil while bypassing Russia and Iran.

The dispute makes the Bush administration the middleman between a promising ally it wants to help and the powerful former adversary next door whose help it needs.

A look at rising need of crude in energy rich nations

beechdriver writes:

WITH the crude demand-supply balance definitely tight, the growing consumption in the energy rich, oil-exporting countries is under hammer, adding to the existing confusion on the future prospects of the industry.

Fresh data from the US Department of Energy show the amount of petroleum products shipped by the world’s top oil exporters fell 2.5 percent in 2007, despite a 57 percent increase in prices and the rise in global consumption. And the trend appears to hold true this year as well.


Rising cash flow from high price crude have fuelled a boom in oil demand inside Saudi Arabia and across the oil rich Middle East, leaving less oil for export, some are now starting to emphasize. At the same time, aging fields and sluggish investments have caused exports to drop significantly in some of the exporting countries such as Mexico, Norway and, most recently, Russia.

Although rising consumption in the emerging economies of Asia, especially China, is often cited as the major factor behind the current tightness of the market, the surging energy demand in the Middle East is also now starting to pose a major challenge. Demand in the Middle East appears a major factor right now. The boom in oil demand across the oil rich Middle East is leaving less oil for export, arguments are continuing to rise. Adam Robinson, an oil analyst at Lehman Brothers in New York, now predicts the region will constitute more than 40 percent of increased demand next year. The OPEC domestic demand has already increased in 2007 by 318,000 barrels per day, the US Energy Information Administration recently reported. Shortage of gas is also causing the pressure on crude in the region. Nations in the oil rich Middle East are using their gas in the chemical, fertilizer and liquefied-natural-gas industries. Saudi Arabia is currently in the middle of a major campaign to boost production of petrochemicals, aluminum and fertilizers, aiming to emerge as a world player in these sectors.