Looming Oil Crunch

A couple of things caught my attention. First, peak oil is mentioned very casually. Even Richard Branson has apparently made a statement about how he believes that the peak is in the next five years. I have been paying attention to peak oil discussion for the past several years. The peak oil group has been fighting this battle for attention for many years now. I dont know at what point the idea of peak oil went from being a fringe notion to a mainstream idea. Second, Ambrose and other economists seem to forecast a high oil price-driven economic crisis. Jeff Rubin, former chief economist, CIBC World Markets believes that the high oil price of 2007 triggered the current economic crisis. He points to declines in the export economies of Germany and China that occurred before the subprime crisis hit. In the next iteration, we will know which other non-CDO financial instrument emperors have no clothes.

Aside, I am a fan of Ambrose Evans-Pritchard. His logic is consistent, and his articles reflect an attention to details. I always learn something new in each of his columns.

Barclays and Bank of America see looming oil crunch

For oil markets, it as if the Great Recession never happened. Surging demand in China, India and the Middle East is making up for decline in the debt-crippled West, ensuring another global crunch within three or four years.

Bank of America and Barclays Capital, two leading oil traders, have told clients to brace for crude above $100 (£64) a barrel by next year, before it pushes relentlessly higher over the decade. This is a stark contrast from recessions in the 1980s and 1990s, when it took years to work off excess drilling capacity built in the boom.

"Oil has the potential to flirt with $100 this year. We forecast an average price of $137 by 2015," said Amrita Sen, an oil expert at BarCap. The price has doubled to $78 in the last year.

"The groundwork for the next sustained step up in oil prices is now almost complete. Global spare capacity is likely to be reduced to low levels within a relatively short time. The global economic crisis has postponed, but not cancelled, a crunch which would otherwise be starting to bite now," said Barclays.

...
Supply is scarce. Sir Richard Branson warned this month that the world faces 'peak oil' within five years. "Don't let the oil crunch catch us out in the way that the credit crunch did," he said.