The red ink hasn’t yet dried on the deepest global recession since World War 11 and oil is already trading at over $70 per barrel. If that strikes you as a bit odd, consider the statement from Saudi oil minister at the recent OPEC meeting to the effect that $70 was a ‘fair price for both consumers and producers”. Today’s fair price, in the aftermath of a brutal global recession was only three years ago an all time high.
To understand just how much the goal posts have moved for world oil prices consider that last year was the first in a quarter century that world oil demand actually fell. That’s how severe the recession was in the major oil consuming economies of the world. The last decline, in 1983, ushered in a flood of new relatively cheap oil supply from the North Sea and Alaska. Today, the only new supply we can count on is over five miles below the ocean floor or trapped in tar-like bitumen.
Of course, its always easier to find culprits that to face facts. Congress will blame the speculators, customers will blame oil companies for price gauging, oil companies will blame government for restrictive drilling policies, and traders will blame the falling value of the greenback. But at the end of the day all will have to face the simple fact that conventional oil supply (i.e. the type of supply you can afford to burn), has not grown since 2005 and may never grow again.