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Days after the Jeddah meeting of oil producers and consumers, the World Petroleum Congress met in Madrid, with the usual headline in all such meetings: rising oil prices.
Big energy consumers would like to keep blaming producers that they are not pumping enough crude, thus keeping prices high. Producers, with the members of the Organisation of Petroleum Exporting Countries (Opec) at the centre-stage, insist that there is enough oil in the market - independent market figures endorse this. It looks like both parties are not serious in reaching a solution on the price rise by ignoring real causes. But what are these real causes for oil rising over $140 a barrel?
A long-term problem is refining capacity in consumer countries. Most refineries around the globe are working at 98 per cent capacity, and even if producers pumped more oil, it might not find its way to end-consumers. For example, the largest world consumer of energy, USA, has not seen a new refinery built in the last quarter of a century. Another, relatively new, reason might be an important factor in pushing up oil prices, along with other hard and soft commodities' prices. That is speculation by investment funds targeting commodities' futures away from turbulent financial markets.
That last reason, stressed by producers and some market analysts and denied by politicians in consumer countries, is opening the way for conspiracy theorists to easily explain sharp leaps in oil markets. Some would argue that big oil majors collaborate with politicians and intelligence services to leak news that would boil investors' speculation. Media exchanges between Israel and Iran added more than $5 to the price of oil last week, and a slight provocation to Venezuelan leader Hugo Chavez could trigger a threat to cut oil and thus stir the markets. Though it might be hard to condemn those talking about an oil conspiracy, it looks a bit far-fetched, as there are real reasons for the price rises.
Exaggeration
First, it might be worth mentioning that oil prices in real terms - minus inflation and dollar depreciations - is not that higher than the last boom of the early 1980s. Second, the fear of high energy prices dampening global economic prospects further could be a bit exaggerated, as up until now, the world is coping well with higher prices.
A possible recession has its roots in the structural imbalances of the American economy, coupled with the subprime mortgage crisis and global credit crunch - all US-made. Even if we take the Anglo-American warnings to big oil producers seriously that higher prices would cause a recession with a declining demand and oil price crash, it is the market dynamics at work which should be let to self-correct without manipulation.
The world is facing price increases for every commodity and service, and not just energy. By the way, when we talk about an energy crisis, it is misleading to single out oil as the core of it. Oil meets no more than a third of global energy requirements, and the other two-thirds are met by gas, coal, nuclear and other types of energy. So, why is this unnecessary emphasis on oil? Most probably because most of it comes from Middle East and Russia, two regions the West can not fully trust - again, an oil conspiracy! Some credible economists see the energy crisis facing the world as an issue of scarcity. Whether global oil production has peaked or is about to, there seems to be a consensus that cheap oil is over. Natural gas cannot plug the gap in energy supply if oil is not enough to meet rising demand.
New technologies are focussing on biofuels, which cannot be sustained as it is produced at the expense of food supply needed to meet rising global needs. Even the environmental advantages of biofuels are questionable. Moreover, how much biofuel the world can produce - wasting precious grains and sugarcane - in a few years! Ethanol production now is no more than the equivalent of one million barrels per day of oil, and even if it increased fourfold it would not meet a five per cent of global demand. Early next decade, global oil demand is expected to be at 100 to 110 million barrels a day, compared with 86 million now.
If the world is really keen on solving the energy crisis it is bound to face soon, the blame game and conspiracy theories should be avoided and a genuine effort to find sustainable alternatives should be pursued.
The author is a London-based Arab writer.
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