by frog
Morning Report presenter Geoff Robinson riffed on US President Benjamin Franklin this morning when he mused that, along with death and taxes, high petrol prices had become another of the world’s certainties. Quite. Crude oil has reached US$64 a barrel. This is a lot.
To give you an idea of quite how high US$64 a barrel is, take a look at this graph. Five years ago, crude oil cost about a quarter of what it does now. The current price level is basically on a par with the historic high reached during the Iraq/Iran War in the early 1980s. The difference, of course, is that the high price now is caused by structural factors, not by a particular conflict in oil-producing nations. The world’s remaining oil reserves simply aren’t going to be able to meet the insatiable demand of the West, and the emerging economies of China and India. The end of cheap oil is arriving, and everyone needs to get used to the idea that, from here, petrol prices are only going to go up.
That’s one of the many reasons the Greens passionately believe we need to be investing heavily in public transport infrastructure. In the future, only the wealthy will be able to afford to drive to and from work in our major cities, so expensive will it be to fill up the car. Everyone else will need fast, efficient public transport systems to use. It’s time to start building them.
Published in Economy, Work, & Welfare | Environment & Resource Management by frog on Wed, August 10th, 2005
Tags: environment
on the trolls and those who are unable to keep on topic
Despite my rural background I have long since supported the Green’s proposals for upgraded, efficent and cost effective public transport. For nearly a decade, once upon a time, I lived and worked in Wellington and did not have private transport. I needed, used and blessed the very good public transport in the Wellington area. I learned from daily experience just how practical good public transport can be. I still strongly support the ideals.
However, I cannot help but feel anxious about the effect very high oil prices will have on the rural dwellers, and those in small rural villages. It will be tough. Joy.
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Any ideas why the Aussies haven’t seen anywhere near the same price rises as we have?
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You are right Joy. We are travelling about 350km a week for work and constantly on the look out for more fuel efficient means of transport (Not sure if I am up to a 54 km round trip on the bike) and also jobs closer to home. When there was a bus running in our locale my wife used to cycle 10km up to the main road to catch the bus. Great place to catch up on knitting and reading. Puzzles me when my Auckland brother refused to take a bus to work when it collected him from the front door and stopped down town outside his office. You can lead a horse to water..
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Sorry but Ben Franklin was never president.
It’s an easy mistake to make, i went on the Franklin Tour in phillidelphia and some people on the tour never realised that he was never president.
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Not having travelled anywhere, let alone Australia, I had no idea that thier fuel prices would be significantly different to ours. So I shall look for someone with the knowledge to answer this one, and enquire of my Aussie email friends. Joy.
PS. My Ohio email friend was aghast when I first told him of our fuel prices and that was when premium petrol was still under $1.00 per litre.
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Joy, you should know that the US has one of the cheapest if not the cheapest of petrol rates in the world. I would say that the reasons Australia hasn’t experienced as greater an impact from high oil prices is due to the exchange rate.
Personally, i’m just glad that I don’t need to worry about these increases too much, as I cycle everywhere. However, filling up the tank isn’t the only thing that fuel rises will impact on- the cost of food, and the numerous other transported goods (well, almost everything!) that are sold in our shops will all go up in price- things that will affect me.
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This is only the beginning. And it’s nothing compared to what we are about to experience.
The current oil price is due to a variety of issues related to security of supply, market concerns about availability along with current depletion and increasing demand. At some point within the next year or 3 we can expect to see demand for oil exceed the available supply. At that point all that we hold dear, our western industrialised McBullshit lifestyles will change forever.
Economic growth is predicated on the fossil fuel economy, and the expection of endless substitution of products and resources which are cheaper and more efficient. Unfortunately oil represents the pinnacle of this ideology – there is no cheaper more efficient substitute.
We are about to move into a time of transition – movement away from fossil fuels won’t be a choice, it will be a necessity, unfortunately unless the transition is managed at a global and national level we are in for some extremely ugly scenes.
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Steve,
That has for many years now been the substance of my nightmares. Joy.
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Frog’s graph of oil prices is good, but:
* frog doesn’t make clear that it is an inflation adjusted graph with prices converted into 2004 equivalent dollars.
* it ends at the end of 2003/beginning of 2004 when the oil price was $37 dollars.
To really appreciate how high $64 dollars is, draw the line continuing upwards! Or try this graph that fastbike posted earlier:
http://tinyurl.com/a4oth
That’s a live chart showing 3 years of prices for West Texas Intermediate (WTI) a benchmark light crude.
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There are structural forces at work here. But I think Froggy’s wrong to say they’re the key force right now (though the have been for the last couple of years). This recent spike followed security concerns in Saudi Arabia – they’re short term. Oil futures a few years out are cheaper than oil futures for this year, which indicates that the current spike is higher than the current structural oil price. So it looks like we’re seeing insecurity of supply driving the current spike to the mid sixties, on top of a structural move that pushed prices up into the 50s in the last three years.
Expect oil prices to go both up AND DOWN over the next 5 years.
The fact that they’ll go down as well as up is part of the problem because it will make the overall upward drift of oil prices harder to see. Prices will bounce up and down – but up to higher highs, and never down as far as they were before.
But when oil drops to ‘only’ $50/barrel there will be pundits who say “look, peak oil is a myth, oil prices are dropping!” And then when they peak up to $90 or $100 a barrel a few years later the same pundits will say “the greens are crying wolf again, like in 2005, but prices went down in 2006″!
Oh, I despair.
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Franklin was kickass. He *shoulda* been President, but never was. Sure, he had flaws. But for his time, he was amazingly cool.
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To Icehawk’s point, even today some US media sources attributed the rise in the US stock market to a “slump” in oil prices from $64 to $63. Attributing market moves to single factors is always rubbish anyway, but to call a drop of $1 a slump is a good example of the hype “good” news/bury “bad” news approach.
When oil was in the fifty dollar range, all the talk was about inflation-adjusted prices, seeking to minimize today’s prices against the prices of the 70’s considered in today’s dollars. Now the story has morphed into how efficient and not really oil dependent are our economies after all. At $90, perhaps the story will be that massive oil company profits tend to “trickle down” to benefit the average consumer in unexpected and wonderful ways.
The bottom line — the left needs more and better sources of economic analysis to counter the cheerleaders of dead-end “growth”. In the proper context (i.e. when little things like the geology of oil and gas and thermodynamics and ecology are brought into the picture) plans to build more roads are revealed for the reckless and ridiculous schemes they are.
It always amazes me that right-wingers portray green-minded people as soft-headed and irrational when it is demonstrable, again by relying on facts (e.g. the finite nature of oil and gas) and science (greenhouse gases lead to catastrophic climate change), that most economists, politicians, and CEOs advocate policies that are suicidal. Who is soft-headed and who is rational?
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Evidence that global oil reserves have peaked will only manifest in retrospect, that is, when the overall production of oil one year is less than the year before, and we’ll only be sure after 2 or maybe three years – the peak will I suspect be quite flat for perhaps up to 5 years.
Where the problem lies is when demand surpasses available supply. And there is likely to be a lag effect in market response. That is demand will continue to soar due to demand inelasticity of oil, there are no real alternatives. So, we’ll still be happy to pay for petrol I suspect when the price is $160 a barrel. Discretionary driving will obviously go out the window but overall demand is unlikely to be affected.
Problem is at this price flow on inflationary effects will ensure the reserve bank moves interest rates in step with inflation. Mum and Dad investors will be the first to hit the wall as all the mythical “value” in property vanishes overnight.
I’d expect the next term in Government to see inflation move beyond the 3% band. The initial lag effect before structural supply deficits hit when we peak will ensure continued consumer spending, slow ratcheting up of domestic retail and property. When shortages do start emerging, all hell will break loose. This won’t be like the Iranian Revolution, nor the Arab Israeli war – the 70s shortages. This will be irreversable.
2007 or so, the house of cards will come tumbling down. And, we’ll be into “the long emergency”… A recession that we’ll never emerge from.
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Heres a graph of petrol taxation rates across many OECD countries
http://www.dpmc.gov.au/publications/energy_future/chapter5/2_introduct ion.htm
I cant vouch for its varacity, but it feels reasonable.
Some countries, notably the UK, dont have a tax on petrol, they have duty, which is addition to “ordinary” taxes. So petrol is subject to 17.5% VAT (same as our GST), as are most goods, and that proportion of the tax take varies with the pump price, and thus ultimately varies with the price of crude. The duty however is a fixed amount per litre, and thus the amount of money collected by the treasury in duty does not increase as the pump price increases, only when the chancellor ups the duty in the annual budget.
Of course, those countries with the highest taxes and duty (and thus fuel prices) are least impacted by increasing crude prices, as the crude related proportion of the pump price is tiny compared to the government take. In the UK, the effective duty on fuel is in excess of 400%.
Yes, Sir, fuel in New Zealand is still almost free.
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…Cheaper than milk or bottled water yet it comes to us on massive ships all the way from Dubai.
One reason for the discrepancy in the petrol price increase between NZ and Australia could be the fact Australia still has a reasonable portion of consumption sourced from indigenous supply, albeit dwindling: ~40% reduction since peaking in 2000. Australians enjoy roughly 60% import dependency.
http://www.financialsense.com/editorials/powers/2005/0203.html
Whereas in stark contrast NZ is out in the cold, adrift in a vast ocean of isolation, almost devoid of significant petroleum endowment. NZ is an oil junkie with approximately 98% import addiction.
http://www.med.govt.nz/ers/oil_pet/oil-security/final/index.html
As the above PDF clearly states, NZ may be the most vulnerable petroleum consuming nation in terms of probability of supply disruption. Many see NZ as the canary down the mineshaft.
http://www.peakoil.com/fortopic764-0-asc-0.html
The looming Election could well be the most important ever.
Labour with a much stronger Green component may lead to a softer landing (not that there will be a ‘landing’ this time). Retrogression is a hard sell.
New Zealand has sold out to capitalism, the WTO, greed and rampant materialism and self subjugated to the pitiful state of licking the ground before China’s feet in a veritable kow tow. This grave situation will likely deteriorate, particularly if the squirming boomers vote in the National/NZ First abomination which would eschew all this Kyoto, carbon tax, climate change, petronoia mumbo jumbo in favour of a concerted and desperate effort to appease the deities big business and growth, propping up the baby boomers property bubble whilst erecting coal thermal plants and laying four lanes worth of asphalt from head to tailpipe of what they consider the important part of NZ… culminating in Brash playing the sycophantic fiddle to the us/uk/au axis of evil and the possible eventuality of a draft in little ol’ NZ to support their endeavours.
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Kane9 — Is it better or worse in the medium and long term for NZ to feel the full effects of oil depletion before many other countries — petrochemical-intensive farming, transport of food for export, tourism, reliance on roads and cars for most transportation.
NZ may be hit hard sooner. But will it be hit harder than other countries even more dependent on cheap fossil fuels but possessing some of their own resources?
What does Canada, or Brazil, or Northern or Southern Europe, or Malaysia or Indonesia look like as oil enters the third year about $100?
And which of the candidates is laying a groundwork to allow their party to offer answers to a lot of pissed off citizens when, in addition to something to eat, they want a few answers?
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It’s difficult to continue making rash predictions… even assuming a scenario lacking overwhelming geopolitical intervention, which of course cannot be relied upon. In a case of geopolitical stability (ha ha) – the energy depletion predicament will not sweep the globe affecting all like economies to the same extent at the same time. The more susceptible will fall victim sooner as has apparently been the case in some third world nations, most notably and surprisingly Indonesia, self relegated to an OPEC observer status, and suffering fuel shortages and resultant turmoil. As the situation evolves with more and more poor countries succumbing to soaring oil import costs and hence trade deficits, NZ may be first in line out of the ‘first world’ nations to suffer an economic crash. When such a crash might take effect relative to that of other nations would influence national security, refugee influx, affluent abode seeker influx, and the way NZers handle the transition. I think later the better so NZ is in as strong a position as possible, I can’t think of a reason why becoming most vulnerable early in the process would be beneficial. My opinion regarding your second question is that at least a country with its own petroleum resources has the ongoing means to operate infrastructure and policing to maintain some semblance of order. How might the disgruntled folk of say Invercargill behave several months into a context of complete lack of fuel supply, in June with the cold and dark of winter pressing up from the south, ineffectual central and local governance and eventual police immobility?
http://www.guardian.co.uk/climatechange/story/0,12374,1546824,00.html
At least it seems the Invercargill folk can look forward to a warming climate, +2 deg for the south predicted at this stage.
Nobody seems to be able to predict economic tipping points with many sectors showing resilience. There were dire predictions concerning even $50 oil and yet now it’s at $65 with minimal demand destruction. Canada and Brazil being vast and possessing sizable resources will do better than most. Brazil is perhaps the nation most transitioned toward biofuel use, which would help in the medium term. Long term, according to a recent University of Berkley report, biofuel is not a sufficient substitute due to it on average having an overall negative EROEI of ~27% – an energy sink. Hmmm, Europe, economically strong and energy efficient but too population dense. Malaysia and Indonesia will enmass chose migration via Torres Strait and many Tampas to this place rather than face the expansionist regime from the North.
Only Jeanette and Tariana have come out, using that ugly ‘Peak Oil’ term in public, hence only these two so far qualify to escape the lynching. Yet neither used the ugly term on the Cambell live debate.
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I see Oil is up another 3 dollars today to $66 a barrel !!
When 2 days ago frog said above “current price level is basically on a par with the historic high” well now the current price level is more than the historic high – so tonight oil is the most expensive its ever been, even if you take inflation into account.
I’ve made a new version of the live price chart but removing the confusing indicator plots above and below so that all that is left is oil light crude daily price and 50-day moving average.
http://tinyurl.com/8c9ab
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How much will petrol prices rise for each rise dollar rise in a barrel of crude ? Check out this guesstimate
http://tinyurl.com/a2u9v
$100 crude (which this site sees as a function of oil refinery bottlenecks in december this year, or january next) adds about US14 cents a litre, which is very roughly, what, about 10 cents a litre more in NZ dollars?
But while this ‘$100 crude’ might result in $NZ1.54 a litre for regular, we have to also remember that movements in the exchange rate can have even bigger effects.
Labor and Nationals tax cutting and big spending promises will tend to strengthen faith in the NZ dollar initially, but ultimately, as oil-price inflation feeds through, all currencies not backed by oil or commodities must weaken. Oz will do well. Our currency will depend on the demand for our commodities and value added manufactures.
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Big spending or tax cuts should weaken the NZD, as more dollars in circulation lowers their value and increases inflation. Generally speaking.
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Would not a weakened NZ$ improve the situation for all NZ exporters? Is that not where the foundation of our country’s wealth comes from? Joy.
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