Rhein on Energy and Climate

$ 200/Barrel Oil?

The nominal price of a barrel oil has passed another magic barrier: $ 125 for the first time in history. It is no longer a question if the price of oil will reach the cap of $ 200 per barrel, but rather when.

They are bound to continue their inexorable boom of the past 10 years. Why this certitude? Oil prices have quadrupled since 2000, within less than 10 years, under the impact of strongly rising demand from emerging countries and more costly supply. It costs more and more to find new oil and gas sources; companies have to search harder off-shore, in icy waters and at greater depths. OPEC and other oil-producing countries are in no hurry to lift their valuable treasures. They are flush with cash and bet on rising prices. So why should we not witness another doubling of oil prices with the coming three years?

Corrected by inflation, today`s prices are no higher than the short-term peak reached in early 1980 during the second oil crisis. Today the average US household spends no more on energy (about 8 percent) than it did back in 1980. The world economy has not collapsed under the weight of rising oil prices, as many pundits had forecast.

We desperately need an even higher oil price. We have to cut down consumption of oil and other fossil energies in view of mitigating global warming. But as the demand for oil responds only very little and with considerable time lags, we need big jumps in the oil price to have a visible impact on consumption. The higher the oil price the higher the electricity rates and the more competitive electricity from wind and sun. It is only when these become more competitive with fossil fuels that electricity companies and car makers will accelerate the shift to new sources of energy. The process has just started. We still have 90 percent of the path before us!

So let us look forward to an oil price of $ 200/b barrel in 2010. And buy stocks of wind and solar companies today; they are bound to continue their upward trend as oil prices will soar.

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