High oil prices 'here to stay' says EU energy commissioner

High oil prices are here to stay, the European Union's energy commissioner has warned. Guenther Oettinger said on Thursday that the lower prices of the past three years had been the result of the financial crisis and recession, and that companies should plan for higher prices.

"The oil price will not go back to $60 [a barrel]," as it did in 2008, Oettinger said. "As a normal perspective, you have to accept the oil price will be near to $90 a barrel or some more."

But he suggested that the current price of around $100 a barrel could be problematic. "No one, neither oil producers nor consumers, have an interest in a long-term price higher than $95," he told reporters in London. "All stakeholders have an interest in stabilising the oil price."

Current oil prices of around $100 a barrel could hurt the European economy if they persist for a long period, he said, adding that companies should adjust their planning accordingly, and try to become more energy efficient or turn to other sources of fuel...

my commentary:

So, what Oettinger is basically saying is that oil will not ever be lower than $90 per barrel...that oil prices will be higher in the future...but that oil prices should not exceed $95 per barrel in the long-term. What Oettinger's claim then means for Europe is that Europe - and therefore the rest of the world - does not have much wiggle room for oil prices. Oil prices will be $90+ per barrel, but can't be above $95 for the long-term. Peak production of conventional oil has likely occurred, oil prices are only going to increase in the near- to long-term. It is very unlikely that global oil prices will ever return to below $95 per barrel for any extended period of time. With oil prices currently above $100 per barrel (Brent Oil Price) for the past couple weeks, it would seem that Europe's economy is in for more and bigger problems soon...further recession, no recovery, and an eventual collapse. All it would take is one big oil price shock like what happened in the Summer of 2008 to derail Europe and the rest of the world....Whatever happens to Europe's economies affects all other economies...and vice versa.

for complete article:



In the latest monthly IEA oil report, the agency makes a special comment about oil prices as a percentage of global GDP:

At 4.1%, the 2010 global oil burden, albeit below that of 2008 (5.1%), was already the second highest 
following a major recession (the highest was reached in 1980, at 8.0%). Put differently, the oil burden rose 
by roughly a quarter in 2010. For the OECD, this was equivalent to roughly 0.8% of its collective GDP. 
Moreover, under current assumptions for global GDP, oil price and oil demand, the global oil burden could 
rise to 4.7% in 2011, getting close to levels that have coincided in the past with a marked economic 
slowdown. Indeed, the combination of higher prices with a fragile economic recovery, emerging inflationary 
pressures and instability in the Middle East is not a healthy one. A sensitivity analysis for 2011, on a ceteris 
paribus basis (holding GDP and oil demand constant), indicates that, at current prices of around $90/bbl 
(WTI), the global oil burden is rapidly approaching the 2008 ‘recession threshold’ – and is already well above 
the $70‐80/bbl price range described as ‘preferred’ or ‘ideal’ by some producing countries, which would 
entail an oil burden of 3.5‐4.0%.

My commentary:

But, since Brent crude oil prices are now above $100 per barrel (whereas the WTI prices is $86-92 per barrel)...the "true" oil price is probably higher than the $90 oil price discussed in the above article. All it would take to cause a catastrophic oil price spike would be a disruption in the global oil supplies and/or a crash in the economic system (which would result in oil price increases). "Disruptions" include social unrest in oil producing countries, market disruptions (economic crashes), terrorist and pirate attacks (such as in the Gulf region and along oil trade routes), the alarming decay of the world's oil infrastructure, etc. The upheaval in the Middle East and North Africa (including the turmoil in the Gulf region and the Suez Canal, which are all major oil trade routes). One way or another, from the perspective of oil prices it seems that the world may be at the threshold of economic collapse whatever the "true price" of oil actually is.



Image: International Energy Agency (IEA)

original article:

Oil supplies declining...demand increasing...oil prices already above $100...food and commodities prices skyrocketing...the global economy unraveling...

~ WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices
~ World oil demand to rise in 2011
~ Brent crude stays above $100

...there can be no economic "recovery" back to business as usual without more abundant cheap oil.

By the way, in the peak energy and climate change report,  I wrote about Sadad al-Husseini's admission (see Wikileaks article below) that Saudi Arabia's oil reserve and production estimates were inflated and that they have reached peak production. It seems that Wikileaks is a bit slow to to release the news...

World oil demand to rise in 2011

Global oil demand rose more strongly than previously thought last year, with the world consuming an extra 2.8m barrels a day, 3.3 per cent more than in 2009, according to the International Energy Agency.

The latest oil market report, released by the IEA on Thursday, reinforced the picture of a powerful recovery in demand, forecasting a further increase of 1.5m b/d in 2011. For the third month in a row, earlier estimates were revised up, with the IEA adding another 120,000 b/d to its figures for total oil product demand in 2010 and 2011.

complete articles:

World oil demand to rise in 2011



Rise in oil demand beats expectations



Brent crude stays above $100

...possible or ongoing tension especially in the Middle East will cause oil prices to escalate. Investors remained concerned that the unrest in Tunisia and Egypt could ignite similar protests in bigger oil producers such as Libya - or even Saudi Arabia.



WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

US diplomat convinced by Saudi expert that reserves of world's biggest oil exporter have been overstated by nearly 40%

The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.

The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.

The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East.

Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached.

According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as "peak oil".

Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.

"Al-Husseini is no doomsday theorist," the cable concludes. "His pedigree, experience and outlook demand that his predictions be thoughtfully considered."

He told the Americans plainly that the Saudis will not be able to ride to the rescue: the Saudi oil industry was overstating its recoverable reserves so as to spur foreign investment, he alleged, at the same time as it was badly underestimating the time needed for bringing new oil on tap.

No US government official has come close to saying this in public. It is a conclusion of profound significance for the world economy, if correct.

The June 2008 cable reports major project delays and accidents as "evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production."

complete article:



 Recent world developments are supporting the findings and projections  discussed in Peak energy, Climate Change, and the Collapse of Global Civilization - i.e., soaring oil and food prices, economic collapse, and social upheaval in the Middle East and the rest of the world.

Signs for global economic collapse are very clear...

The following is a select, but not complete, list of  news articles published this January 2011:

Oil and Energy

Peak Oil is Past Tense: Exxon, Shell, and Aramco Admit the Peak is Real

IEA: Oil Output Needs to Increase

Commodities daily: Say hello to $100 crude

Oil May Reach $117 by Year-End, Auerbach Grayson Says: Technical Analysis

Growth hopes push oil within reach of $100

How sustainable is growth with triple-digit oil?

EIA: Global oil markets to tighten in next 2 years

Goldman Sees Oil ‘Bull Market’ on OPEC Capacity Drop

The EIA warns that average gasoline prices could soar over $4 next summer

Saudi: 2011 oil demand to grow 1.8M barrels a day

Today's Trends: China Oil Demand Hits Record, to Keep Climbing in 2011

China Turns Net Diesel Importer on Domestic Shortage

China’s energy use could fox the bears

British lawmakers propose energy rationing

World will be forced to depend on OPEC oil, believes BP

But OPEC doesn't have enough oil to share... ~TM

Opec's grip on oil market to return to 1970s levels

Container Ship Rates Rally as Fuel Prices Rise: Freight Markets

China May Face Diesel Shortage This Year, CNPC Says

Korea scrambles to cut electricity use

Vietnam to face power shortfalls in dry season, EVN says

Chile evacuates tourists stranded by violent protests (over rising energy prices)

Europe Gasoline-Rallies further to 28-mth highs

Petrol prices to hit £6 a gallon

Eurozone inflation pushed up by soaring energy prices

Food Security

Era of low-cost food is over, study warns

Global Price Fears Mount

World moves closer to food price shock

Global food system must be transformed 'on industrial revolution scale'

Goverments stockpile food staples

Bet the farm: Cropland prices soar 20%

The world is only one poor harvest away from chaos

Sarkozy urges financial reform to avoid unrest

Buy Food, China Is Hungry: Analysts

Asia expects hard fight against rising food, fuel prices

Food prices to rise sharply as more struggle to put meals on their tables (Africa)

African Food Riots Spread To Persian Gulf As Oman Is Next; Adverse Implications For Oil Prices?

Record Food Prices Causing Africa Riots Stoking U.S.

India may opt for ban on wheat product exports

Hundreds protest over high prices in south Jordan

Sri Lanka fears food crisis after flooding

McDonald's likely to raise prices in 2011

United States

U.S. Treasury Secretary Admits U.S. Default Is Imminent

Secretary Geithner Sends Debt Limit Letter to Congress

Plans being drawn up to let states declare bankruptcy

State bankruptcy bill imminent, Gingrich says

California governor declares fiscal emergency

Vallejo Bankruptcy Plan Offers Unsecured Creditors 5-20%; JPMorgan CEO Forecasts More Municipal Bankruptcies; Bernanke Will Not Rescue Cities


Sarkozy urges financial reform to avoid unrest

Spain to rescue its banks

Eurozone inflation pushed up by soaring energy prices


China Turns Net Diesel Importer on Domestic Shortage

Middle East

Arab leaders warned of 'revolution'

Arab League chief warns regional leaders that recent political upheaval is linked to deteriorating economic conditions.

Latest Inflation Riot Tally: Algeria, Tunisia, Morocco, Yemen And Jordan

Tunisian President Dissolves Government

Reports: Tunisian President Ben Ali has fled the country

Protests in Egypt and unrest in Middle East

Cairo protesters in violent clashes with police

Egypt: President's son and family 'have fled to the UK'

Hundreds protest over high prices in south Jordan

Arab rulers use handouts to ward off unrest

Arab world needs 40m new jobs in next 20 years

The cost of imported food, particularly wheat, has risen, partly because of the relatively smaller harvest, and partly because the cost of production and transport is rising because of rising oil prices. Figure 1 shows the close relationship food prices and oil prices. The Food Price Index used in this graph is the FAO’s Food Price Index related to food for export; Brent oil prices are spot prices from the EIA.


Figure 1. World food price trend is similar to Brent oil price trend.

With oil prices higher now (because world production is close to flat, and as countries come out of recession, they want more), food prices of all types are higher as well. Oil is used directly in the production of grain and indirectly in storage and transit, so its cost becomes important.

Figure and text from: The Oil Drum



    Oil Prices

    In mid-2004, oil prices increased from the range of $20 - $40 per barrel to $60 - $80+ per barrel. The current global economic crisis was triggered in part by the oil price shock starting in 2007 and culminating in the summer of 2008. When prices increased from around $80 per barrel to $141 per barrel by the summer of 2008. The global economy crashed within months in the autumn of 2008. This economic crisis will likely accelerate and become more volatile once oil prices exceed around $85 per barrel for an extended time. Demand destruction for oil may be somewhere above $80 per barrel and below $141 per barrel. Economic recovery (i.e., business as usual) will likely exacerbate the global recession by driving up oil prices.


    Tariel Mórrígan earned his B.A. in Physics from the University of California at Santa Barbara. He received his Master in Environmental Science and Management (MESM) from the Donald Bren School of Environmental Science and Management at UC Santa Barbara, where he specialized in climate change, conservation, and political economics. Mórrígan is currently the principal research associate of Global Climate Change, Human Security & Democracy (GCCHSD) and a member of its Global Academic Board. His most recent publication is Peak Energy, Climate Change, and the Collapse of Global Civilization: The Current Peak Oil Crisis.


    February 2011
    January 2011
    November 2010


    International Energy Agency
    Peak Oil
    World Energy Outlook

    photo dredit: Let's call it a civilization (CC) (by-nc-nd)
    by: egon voyd