The US energy secretary, Samuel Bodman, said on the weekend: “There is no evidence we can find that speculators are driving (oil) futures prices.”
King Abdullah of Saudi Arabia, who called the emergency energy summit in Jeddah, said the 40% increase in the oil price this year was all caused by the “selfish interests” of the speculators, and something needs to be done about them.
And so the summit got nowhere. The US said the problem was all about too little production, and, like Oliver Twist, asked for more; the Saudis said it was all about the speculators and dribbled a little bit more out.
The Saudis have increased oil production by 200,000 barrels a day, which is less than the 300,000 they increased production by last month and which had no effect on the price, and in any case the weekend increase had been leaked a week and didn’t move the market then.
Meanwhile Nigerian production to has fallen to a 25 year low of 1.5 million barrels a day – a million barrels less than capacity, and a fall that wipes out all of the effect of any increase in Saudi production.
And Mamdouh Salameh, who advises the World Bank and the UN, says the oil price would be less than a third of its current level if the US had not invaded Iraq (since it actually has more oil than Saudi Arabia but production has fallen from 3.5 million to two million barrels a day because of the war).
In Australia the political debate has focused on ways to get the price of petrol down, including cutting taxes.
In the US, President George W Bush has asked Congress to end the federal ban on offshore oil and gas drilling along much of the country’s continental shelf, as if that is some kind of answer to the high oil price.
And the British Prime Minister, Gordon Brown, estimates that the latest oil shock has transferred $US3 trillion to the oil producing nations, and suggests they recycle some of this money back into renewable energy projects among their customers. Right.
The world is in the grip of a frenzy of blame and easy solutions over oil, but neither is even slightly helpful.
The problem is that the world’s politicians are caught in a trap of profoundly contradictory demands from western consumers; they want something to be done about global warming and they want something to be done about the high price of fuel.
Obviously these two things are directly opposed to each other. In many cases the same people are demanding each thing at the same time, with little awareness of the absurdity of this.
Most politicians are followers, not leaders, and are therefore caught in an agony of indecision – a pandering paradox.
Do they raise or cut taxes on fuel? Do they tell the Saudis to pump more oil, or tell them to pump less, so that the market may do some of the work of government-imposed carbon taxes in reducing emissions?
It is tempting to blame the politicians here and to demand leadership for once, but the truth is that we are to blame.
We want less carbon and more carbon at the same time; we say we are prepared to embrace carbon taxes and then embrace Brendan Nelson’s proposal to cut the petrol tax.
The good news is that the market is working anyway and, whether it is caused by investment demand or transport demand, the price of oil has doubled. The market is always a better method of shaping behaviour than political speeches and laws.
The result, apart from a massive transfer of wealth to oil producers, so they have to call energy summits and say they are sorry when they are not, is that sustainable energy production has become more viable and oil-fuelled transport is declining.
For the planet’s sake the price probably needs to stay where it is now.
This first appeared in Business Spectator
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