Thursday, May 22, 2008

It's official

The market thinks we're running out of cheap oil:

Fears of a shortage within five years propelled long-term oil futures prices to almost $140 a barrel on Tuesday, further stoking inflationary pressures in the global economy.

Investors rushed to buy oil futures contracts as far forward as December 2016, pushing their prices as high as $139.50 a barrel, up more than $9.50 on the day. The spot price hit a record $129.60 a barrel.

Veteran traders said they had never seen such a jump and said investors were increasingly betting that oil production would soon peak because of geopolitical and geological constraints.

Arguably it already has. Oil producing countries are pumping as much as they can. There is simply no more supply. Partly that's due to capital constraints, a lack of infrastructure to get more oil out of the ground, but given the timespans involved it means we are likely to be in a state of near-permanent shortage from here on out. Which means the days of $1.50 / L petrol are over.

This isn't going to destroy civilisation, but it is going to have a serious effect on New Zealand. It's going to cost tourists a lot more to come here, so fewer will come. And it will cost us a lot more to send stuff overseas. Domestically, it will cost all of us a lot more to get to work in the mornings, or down to Wellington for the weekend. Which given how mobile and spread out the average New Zealand family is, could become annoying for many.

Of course, our government could have reduced the impact by investing in public transport systems and forcing us to buy more fuel efficient cars. Instead, they've squandered money on roads which fewer of us will be able to afford to drive on. And in Auckland, they're still trying to build a second airport which no-one will be able to afford to fly to. To call this "shortsighted" is an understatement, but unfortunately its what we've got. Which means the eventual transition to less transport is going to be far more painful than it had to be.

I'm just glad I live close to a bus route.