Coincident with this latest message from the IGPCC comes the surge in crude oil prices. It is quite possible that by the time this article appears the prices will have crossed into triple digits. One could argue that this is not as alarming or durably damaging as global warming. The world economy has after all, so far at least, withstood well the high oil price regime. And one day prices may well be pushed into a cyclical downturn. The argument has validity but one should not be complacent. The last time prices reached such levels was in 1980 (adjusted for inflation prices hit $99.04 in April 1980) and that was the prelude to three of the worst years of economic growth since 1940. Also there is a paradigmatic and still evolving shift in the drivers of demand/supply. Earlier the bulk of the incremental growth in demand came from the OECD countries. Today the preponderant share is accounted for by China, India, Russia and the Middle East. This means that unless and until these countries find a viable substitute for hydrocarbons or their economies slow down the demand for petroleum will continue to increase. To compound matters there is anxiety that supplies may not be able to keep pace with demand. This is not because the world is running out of hydrocarbons. It is because the hydrocarbons that are yet to be discovered and/or produced are either in logistically and technically complex terrain (e.g. ultra deep waters) or to use industry parlance in ‘unconventionals’ (gas related liquids; extra heavy oil; biofuels, etc). It is because the era of ‘easy oil’ is now over. This straitened demand/supply equation has been complicated further by the speculative fervour of ‘Wall Street’. In July this year, for instance, the crude oil trading position on NYMEX reached an all time high of around 1.5m contracts of 1000 bbls each and this certainly intensified the run up in prices.

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