Posted by: TomA | 3 January 2008

Hello $100 oil!

Earlier this week oil broke the $100 barrier. So what? Exactly. $100 is no more or less significant than any other price. Interestingly, one trader disagreed, believing $100 was a big milestone – one to be told to the grandchildren – and knowingly lost money on a trade purely in order to be the first to trade above the $100 level [reports the BBC]. The price today returned above $100 and has kicked off a remarkable level of discussion…

There seems to be a lot of speculation that high oil prices are the fault of, and only of, speculator; that the fundamentals don’t justify such high oil prices. Well, seems to be jumping to the gun a touch. Uncertainty regarding the future is the key and with unrest in Pakistan , worries over the state of the US economy along with a cold winter predicted enough to push the price over that magic mark. Changes by the state of Alaska resulting in several of the large oil majors reversing investment plans in the area for extraction can’t have helped either. Yet remember, adjusting for inflation, $100 isn’t the highest its been, and while the USA, and to some extent, the UK, may be set for slightly harder times, reflecting upon the past should leave us feeling relatively optimistic, surely?

A high oil price, and one that is widely expected to stay high or continue to rise through 2008, can only be good for promoting the environmental concerns of the world. Alternatives become economically more viable, creating pressure for a move away from oil based economies. Just look at the number of car manufacturers now offering hybrid vehicles and the range of electric cars coming to market in the next year or two (the Tesla Roadster in 2008; Subura, Honda and Mitsubishi offerings in 2009; and hopefully GM’s Volt by 2010 amongst others no doubt).

Now all that remains is for the UK government to pull its finger out of the proverbial and decide on a way forward for the energy provision. With a looming generation gap (demand for power exceeds capacity to produce by, I believe, 2015 due to a number of power stations coming to the end of their lives) there needs to be a coherent plan. Gordon Brown keeps coming out with hopeful comments regarding CO2 responsibility, but the planning approval announced today for a new coal fired power station (however more efficient than previous generations of coal power) doesn’t look like the required step forward. Yes, completely green sources of generation are hideously expensive, but some economies of scale could help reduce costs. Nuclear remains the obvious alternative and no doubt the constant u-turns from the government has led E.ON to prefer the safer option of “clean” coal. Hm.

2008 is bound to be an interesting year for energy markets…. Which, fingers crossed, is going to give me a whole lot to think about regarding a Masters thesis and hopefully a job…

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