NEW YORK: The past week’s sudden surge in oil prices brought to mind the nightmare of shortages, but it’s not too likely motorists will be queueing to fill up around the world, analysts say. All it took was a September 14 strike on key oil infrastructure in Saudi Arabia to abruptly leave the world’s main supplier producing just half its normal amount. That sent the price of Brent crude flying 15 per cent higher in a single day. The price on a barrel of crude has come back down since then and by Friday was trading around $65.
Given the slowdown in the global economy and the abundance of crude produced worldwide, the prospect of a $100 barrel, for now, doesn’t look too likely. “In essence, the world is far better equipped to handle oil shocks than it was in the ‘70s,” explained Harry Tchilinguirian, the head of commodity research at BNP Paribas. In 1973, after an embargo by the Organization of the Petroleum Exporting Countries (Opec) against Israel’s allies in the midst of the Yom Kippur War, and in 1979, after the Iranian revolution, crude oil prices soared in just a few months, bringing developed economies to their knees.
“Currently, an oil shock would hardly have the same devastating effects” because countries grew accustomed to such events, economists at Commerzbank said in a note. On top of that, “central banks would not react to a supply shock with massive interest rate hikes to combat rising inflation,” they said. Most importantly, however, economies have reduced their dependence on oil. Consumption in the United States, for example, rose from 17.3 million barrels per day in 1973 to 20.5 mbd in 2018, an increase of only 18 per cent even as the country’s real gross domestic product jumped 230 per cent.
In Germany, households spent only 2.6 per cent of their budget on fuel in 2018.
Many economies have taken strides away from heavy oil consumption, thanks to transport and energy-efficient industries, and alternative sources such as natural gas or renewable energy.
When oil prices held well above $100 a barrel between 2011 and 2014, it did not lead to economic collapse. The world has also now become less dependent on a few huge producers.
The first oil crisis led to the creation in 1974 of the International Energy Agency, which requires OECD countries to keep in reserve the equivalent of at least 90 days of their net imports of crude.
On top of that, oil production has branched far beyond the Middle East, said Tchilinguirian, referring to North Sea oil exploited since the 1980s, deep-sea exploitation off the coast of West Africa and Brazil, and the oil sands of Canada. — AFP
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