April 21, 2006

Analysts tip oil will push beyond current record - Business - Business

Analysts tip oil will push beyond current record - Business - Business

Some time ago many people predicted that global economic growth would slow significantly if oil prices rose as high as $50 to $60 - and yet little has happened.

Now some are warning of dire consequencies if the oil price were to rise to $100 a barrel.

The fact is that when we allow for inflation, oil is still cheaper than it was at the height of the oil crisis in the 1970s - 30 years ago.

The oil price per barrel would need to be around $90 to equal the real cost then, but other things have changed. In the 1970s many nations had far higher rates of inflation. Today, globalisation and the digital age have resulted in falling prices across a wide range of goods, and have also reduced the costs of many services like banking.

It could be argued that recent oil prices as low as $15 a barrel were highly undesirable for the sustainable future of the earth, encouraging energy waste and making it impossible to develop profitable alternative energy sources.

From that point of view we should welcome higher oil prices, which are already helping stimulate huge new investment into solar, wind, tide, hydroelectric and other generation methods, while also encouraging fresh efforts in energy conservation.

Higher oil prices suck vast amounts of cash out of oil-poor countries into the hands of oil producers, and this is already finding its way quite rapidly back into other economies. Just look for example at the amount of Middle East wealth that is flowing into the real estate markets in Europe, particularly the UK.

There are a large number of new business opportunities that arise from these wealth movements, and of course from energy conservation / alternative power generation.