Time to prepare for oil price roller coaster

Motorists should prepare for sharp rises and falls in the price of fuel, says the car review website dogandlemon.com.

Editor Clive Matthew-Wilson says:

“Every time there’s economic bad news, the oil price will generally drop, due to reduced demand. Every time there’s an interruption to oil supply, the price will generally rise sharply. Of course, this process has been going on for years, but the current global situation is likely to trigger extremes in oil prices over the next few years.”

“Europe’s recession is getting worse by the day, which is currently causing a dip in oil prices.”

“However, Israel and Iran appear to be on a collision course. There has been a major military build-up in Israel, possibly as a prelude to a strike on Iran’s nuclear facilities.”

“This could easily trigger a major conflict in the Middle East, and just as easily disrupt the supply of nearly one third of the world’s oil.”

“You can’t run your car off oil in the ground. Oil has to be extracted, processed and shipped to its customers. Any disruption to this chain of supply can set off panic buying and a sudden price spike. The situation is made far worse by speculators, who bet on rises and falls in the price of oil. When large numbers of speculators buy and sell large amounts of oil, the market acts like a roller coaster. This makes life tough for everyone except the people making the money.”

“Even the threat of war is likely to cause a sharp spike in fuel prices. Although many Western nations have stockpiled oil in anticipation of conflict, global oil supplies are already stretched. Sanctions against Iran, together with disruptions to oil supplies in Sudan, Yemen, Syria, Iraq and the North Sea, have already cut the global supply by 2 million barrels per day.”

“If this Middle East conflict does not occur, it’s possible that prices will continue to drop due to the emerging recession, which will reduce global oil demand. However, oil prices can’t drop forever: modern oil is increasingly expensive to extract, and supplies are shrinking. The simple fact is, the cheap oil that has sustained us for the last hundred years is mostly gone and it’s not coming back.”

Matthew-Wilson says the current situation is alarmingly similar to the 1970s oil crisis, which caused global disruption and pitched many economies into recession.

“All the signs point to a looming crisis, yet there’s not much sign that the government is actually taking notice. In the minds of politicians, we can still sprawl our cities out onto the landscape and connect everyone by roads. The problem is, what do we do when the oil runs out?”

“Electric cars are a decade away from being a practical proposition for the average motorist. Hybrid cars are only a mild improvement. Most biofuels are either unaffordable, impractical, cause environmental damage or rob land that is needed for growing food. Even where biofuels are feasible, they’re simply not available in sufficient quantities to effectively substitute for fossil fuels. Any shortage of oil will inevitably drive up the price of LPG, making it less affordable. A decade or so after the cheap oil runs out, the cheap LPG will start to run out as well.”

“There’s no quick fix to the energy crisis. In the longer term, we’re all going to have to use less energy, and that means less urban sprawl, smaller houses, less plastic junk that we don’t really need and fewer wasted trips in our cars.”