Detailed Commentary on the Current Price of Oil

Political tensions in the Middle East once again remind us of the fragile dependency of the Western nations on imported petroleum, which have driven the price of a barrel of crude oil to above $100, as was the case immediately prior to the world economic crash in 2008. British motorists and owners of haulage companies flinch nervously in the face of rising prices at the pumps for fuel, feared to reach £2.00/litre if events fail to calm down, since supplies of crude oil from Libya, already cut by an estimated one million barrels per day from 1.6 million bpd, may fall to zero, leading to shortages and further hikes in oil and consequently fuel prices. Saudi Arabia has “promised” to make-up the difference by pumping out more oil, but there is doubt as to whether they have in fact sufficient spare capacity to do so, certainly not the light crude which is exported to Europe for refining into petrol.

There is, for that matter, some controversy over how much oil the kingdom does have in its reserves in total, which are thought might be far less than is claimed.1 The latter aspect is critical to the timing of “peak oil”, a phenomenon2 proposed as long ago as 1956 by Dr M. King Hubbert, a petroleum geologist working for the Shell Development Company. Hubbert’s predictions were made for the lower-48 states of America, that U.S. oil production would peak in either 1965 or 1970, depending on the volume of the reserve that he estimated, i.e. the total amount of oil that would ultimately be recovered given prevailing technology and oil-prices. Western civilization has been built literally on sand – underpinned by the desert sands under which most of the petroleum lies. Our position is thus precarious, resting upon an ability to import ever greater quantities of crude oil, to furnish economic and material growth. In the case of the lower-48 U.S. fields, oil production did indeed peak in 1970, as Hubbert predicted, and by application of similar reasoning the peak in world oil production can be expected to occur close to the present time. (read more)