Thursday, February 24, 2011

Over $200 a barell of oil, oil-pipe dreams

Detailed analysis of oil prices, 1970-2004Image via WikipediaI like Jeff Rubin a lot. He is a very sensible economist and is up there with David Rosenberg. There are not many celebrity economists in Canada to begin with, thus criticizing one of the very few does not make much sense to me. But I can't help it.

Jeff has been arguing for the past few years that the price of oil will stay in triple digits, and it may pass the previous highs recorded in mid-2008. Now other forecasters have also joined the club and are forecasting the possibility of over $200 a barrell.

While oil is essential for the economy, still it is not as necessary for our well-being as water is. If oil prices rise were to such prohibitive levels, it would not be because of Libya, which accounts for a fraction of global oil supply. There may be other serious systematic issues, much more grave than resulting from the toppling of the western-backed dictatorial regimes in the Middle East.

Lastly, if the price increases to such highs, one may see a decline in demand. Consider my own example. I sit in my basement office in shorts when the temperature outside is -10 degrees Celsius. I can certainly put on warmer clothes and turn the furnace down.  I can also not buy an SUV, even though as a North American with a toddler and an infant, I feel entitled to owning at least one.

I can certainly stop demanding exotic fruits that no longer go out of season, thanks to global logistics that bring fruits and vegetables from around the globe to my local grocery store.

We can all significantly reduce our oil consumption to keep the price of oil in check. Or better, we can reduce our oil consumption to ensure we leave a healthy planet for our future generations.
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1 comment:

  1. If what economists are suggesting is true then the retail industry will be hit very hard.

    Many retailers import their products from countries from afar. I believe the raising oil price will affect their shipping and manufacturing cost which will result in higher prices for products and services. Some families may find it harder to sustain since the expenses in their household will increase while their income still stays the same.