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May 9, 2006
The rich also cry - and this time for real
By: Silvio
It is quite heartwarming to know that even the biggest oil producers in the world are not happy with the current surge in energy prices - at least this is what Mandil said:
"The current prices aren't sustainable," IEA Executive Director Claude Mandil told a media briefing [...] "Even producers aren't happy with the high prices," Mandil said, citing concern about potentially weakening demand.A bit less heartwarming is the fact that big producers are worried about the effects this spike in prices will have on demand, since what they say they are thinking is: "if prices get too high no one will buy our product anymore".
But all this situation stinks a lot.
You see, there's one thing quite certain in this world: our economy, our own lives cannot last one second without their dark blood.
There is no substitute for oil - anywhere you look at: when you are addicted to an energy source that still has an ERoEI of 40-50 (that is, for 1 barrel of oil used around 40 are extracted) and that has such a vast usage in everyday life (we use it to heat us, to move our cars, to fertilize our crops, to produce much of our goods), it is very difficult to foresee any easy and fast replacement.
Therefore, the argument "we don't like high prices because it will make our customers buy something else" doesn't stand too much: oil has a very rigid demand basically because there is no "something else".
It is clear, then, that oil producing countries should be as happy as a clam - as all members of oligopoly do when the price of their product rises.
Otherwise, if they really weren't happy with the current situation, they would increase their output - thus lowering the prices, right?
Well, I think that the true story behind these kind of statements ("we producers are not happy about the prices being so high") is that oil producing countries are trying to tell us, in a quite soft way: "look, we have no spare capacity and any minimum shock will make oil prices rocket to the sky: BUT WE CAN DO NOTHING ABOUT IT, so please don't blame us for this situation".
In other words: we finished all the cheap oil, guess we'll have to start paying what's left quite costly.
Posted by Silvio at May 9, 2006 10:10 AM Category: Peak Oil