It's never the crisis you expect that gets you, precisely because they are anticipatable. It's the unexpected that always really impacts. And there may be one of those coming. As the Guardian reports in an email this morning there is a growing risk of Saudi Arabian retaliation to Western reaction over the disappearance, and suspected murder of journalist Jamal Khashoggi. As they note:
The kingdom is now weighing up 30 counter measures if penalties are imposed, including a possible oil production cut that could drive prices from around $80 (£60) a barrel to more than $400, more than double the all-time high of$147.27 reached in 2008.
Of course, such a price may be appropriate: it may be what is needed to ensure oil does stay in the ground. But the transition to such a level may need to be more gradual than the Saudis are threatening, in which case chaos would be likely to ensue.
Is this possible? Given the rapid political isolation that Saudi is suffering for what looks to be an act of officially sanctioned murder of a journalist the risk of retaliation is significant. And Saudi clearly does hold an invaluable weapon for trade war. What is more they have little to lose from such a war, which would solve their own pressing internal budget difficulties that recent low oil prices created for them.
On balance, the shocking cost of fuel at the pump I used yesterday looks like it may well be something I fondly remember quite soon. The risk in this situation looks to be significant.
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All the more reason to frack in the minds of some Richard. I doubt the Saudis have so much control on oil price, but should this be true the ‘frackers’ have a good propaganda weapon. I live in the Bowland field and look forward to sipping my malt to the distant thunder of earthquake and heating the hacienda by switching the tap on and igniting the water. Wait, this paradise folds on realisation I got the term ‘distant’ wrong. At least I won’t be lonely now Mother Theresa may have the postie call to make my day.
Slightly closer to reality, we eat a fair bit of the oil and gas via fertilizer production. Filling up will get more expensive even for those who don’t drive. Everytime something like this crops up I can’t believe how dumb economics is, constantly evading real-world evidence.
And much of that fertiliser ends up in meat
I am tending more towards vegetarianism by the day
Not there, but tending
Take a quantum ‘cold turkey’ leap and go vegan. It’s the only logical diet from all perspectives – ecological, ethical and physical health. As in politics, a ‘middle road’ strategy is an unsatisfactory compromise – lol 🙂
Could you please explain how a rise in price to $ 400 per barrel would encourage companies to leave oil in the ground ?
People won’t buy it
Away from the Saudi’s.. every viable oil field across the globe will be fired up and producing oil well before the prices mentioned in your article..that said the Saudis mixing politics and business will lead to greater investment in alternative sources of energy..kill two birds with one stone: save the planet and blow a hole in the corrupt Saudi cash cow..
Faced with £3.00/litre fuel, and heating bills increasing rapidly as well, you may find the public support for hydraulic fracturing increasing rather than decreasing…along with other minor problems of a hard exit… we have an increasing energy link to Europe via electricity interconnectors (7.5% +)….we purchase our gas from Norway and Qatar…and the US (fracked)…..the North Sea fields output is decreasing, and they are being sold-on as well. But, higher prices per-barrel will lead to the rapid development of more difficult resources…of which there are a fair amount offshore-UK, and on-shore UK too….
We flew to Italy this year in one of Ryan Air’s pig pens with wings. We enjoyed the holiday but we all felt bad about being on a plane. Boarding the thing, all you smell was the fuel that was being pumped into at Stansted.
We went to Berlin on the train (a diesel train in the UK but electric from St Pancras International) all the way and walked or used public transport in Berlin itself. Because of that we all felt that we came back with more memories and a better understanding and appreciation of where we’d been because we hadn’t been cacooned in a car. Next time (if we can afford a next time) we are going to hire bikes in Berlin.
Next year it is back to camping in the Lake District.
My family have been talking about the recent international environmental warning delivered and it has made us more aware of energy use.
I have to have a car as part of my job contract. I’d like to think I could get an electric one to get me off oil when the current car is up for renewal. But unless I get a real pay rise and cost of that electric car is reasonable, I am afraid that I may not be able to help as much as I would like. I think that I speak for a lot of people on this issue.
The worrying scenario for me is that the money that could be pumped into making the change from oil to electric less traumatic will be used instead to pay for a war.
Iran looks more vulnerable than ever as a target of a manufactured reason to go and grab some more oil for the West, so your comments certainly resonate with me.
Thank you for drawing attention to your efforts. Some things are literally unbelievable.
“change from oil to electric ” does not make sense because electric is simply a storage and delivery method, its not an energy source, like oil. Re-newables are a low density energy source thus not good for e.g. synthesising hydrocarbons for carbon neutral air flight and veheicles and nitrogen fertilizers (i.e. chemical batteries) and need significant oil energy to mine the raw materials and to build and maintain the infrastructure, batteries etc. Very high density nuclear is an energy source that is significantly more efficient and environmentally benign in nearly every measure. It is easily the quickest and cheapest way to wean economies off big fossil, the Saudi’s and the rest of the cartel.
It just blows the planet apart….
It makes perfect sense, especially in cities, where half of air pollution is caused by traffic.
Sure, it shifts the pollution back to the generating plants, but they are run at maximum efficiency/minimum pollution.
of course, it makes for more problems with respect to charging, since most houses will only be able to do a standard charge (15A ring-main socket = 20 hours to charge) and many batteries will only “allow” one fast-charge a day, so the streetside chargers are of limited use.
Day off from reclaiming the garden from wild-life today. Tempted to go green and cede the lawn to the critters. I would give up eating meat except I’m old and me teeth won’t grind veggies well. I do insist on a non-plastic straw to suck up my liquidised vegetable soup though. Most fuel cost is Richard’s vaunted Joy (of tax). Higher oil prices at the well head could lead to this joy being slashed out of the system. How much would that be re-adjusted on income tax to make sure we don’t lose the joy? Is there so much joy on fossil fuels to keep them in the ground or to keep the actual price of the stuff lower? The Saudis are at war with women and children in Yemen. Could they risk losing revenues?
The Saudis obviously hold a lot of power by being able to buy influence but the real decisions are made in Washington and no President is going to allow that to happen. America has made sure there can be no repeat of 1973.
This would be utopia for Richard. Individuals paying 70% income tax and with the little money they have huge costs at the pumps and shops so they cannot save or god forbid invest money into businesses.
So no growth in the economy and we can all work the land being members of unions…
You know I am a serial entrepreneur and chartered accountant?
And that your comment just makes you look rather silly?
The Saudis’ fellow members of OPEC and their non-member allies would never fall-in-line with a Saudi-led cut in production. Not everyone may be aware that OPEC already has it’s “hawks” and “doves” and their united front to maintain controls in production to “safeguard” the market-price is pretty much unprecedented; members have been cheating their production figures for decades.
Russia, as a non-member who also cut production (or at least did not open the valves more), would be somewhat aggrieved and would more than likely leave their current agreement with OPEC in the dust.
$400/bbl is a fantastical forecast- the journalist must have asked advice from an oil-dealer and then doubled it for effect! If the Saudi’s stopped all production tomorrow, the resultant turmoil-led price would not even be close to 400 bucks! I’d say $200-£250 would be the maximum, before the west would suddenly start talking with the Iranians again!
For sure any wild-card action by any state would influence the O&G market and industries but in a global market such as O&G, there are global implications; political being the most important, followed by the economics but these are someway behind.