Ground Floor Sheila O'FlanaganSeeing yet another oil price surge wasn't an April Fool's joke at the end of last week. The price of heating oil was up 6 per cent on the day, while energy traders fretted that demand continues to outstrip supply.
It doesn't take an expert to tell us that the more oil we want the more expensive it's going to get unless there's more of it around.
And it's hard to see that Gordon Brown's demands to the oil-producing nations to cut prices is going to have any effect.
The reality is that there is nervousness about potential disruption to supply, and everyone is concerned about further shortages, so they're covering their positions now and that is driving prices ever higher.
All during last year, as prices edged upwards, we were assured by economists that we didn't have to worry about the price of oil until it got to $100 a barrel and that such a price was highly unlikely. But, in the past few weeks, more and more people are asking how unlikely that really is.
After all, if there is real demand and real shortages due to limitations on production, what's to stop the price rising further?
Besides those with a specific interest in buying oil, the hedge traders are continuing to place new bets on the highs prices can reach.
Goldman Sachs brought out a research note last week suggesting that oil prices could actually reach $105 a barrel.
The International Energy Agency (IEA) has said that the daily demand for oil in 2005 will rise by 1.81 million barrels and has recommended that countries begin the implement measures to decrease demand in the next few months.
They've suggested that speed limits be vigorously enforced and that people should be encouraged to share the car when going to or from work.
Of course, for anyone who can remember the 1970s, similar suggestions were made then and energy conservation was an important issue. The problem is that once prices fell again we all forgot about it and governments decided that energy consumption was something to worry about another day.
So now another day has arrived and the advice is the same. The IEA has also suggested offering free public transport and shortening the working week.
I was in school the last time the working week was shortened and the UK entered its winter of discontent. Not something that Tony Blair wants to be thinking about ahead of an election!
Free public transport would be wonderful, of course, but our transport system wouldn't be able to cope. That's why so many people still take their cars and sit in the traffic jam that is the M50.
Motorists - myself included - frequently have hysterics at the toll bridge delays (and, of course, fees that make you throw in more than necessary for the sake of speed.) It's not a study I'd be able to conduct myself, but I wonder how much fuel would be saved by giving in to common sense and allowing free use of the motorway from 8am-10am and 4pm-7pm.
Despite the comments from the IEA the focus for most governments is in trying to get production increased rather than trying to lower demand.
From next month OPEC is expected to increase its output by 500,000 barrels a day, but Sheik Ahmad Fahd al-Sabah, president of the organisation, still sees the potential for prices to exceed $60 per barrel. Like many people, he blames fears of supply shortages rather than shortages themselves, although the supply/demand situation is very real.
The Saudi oil minister, Ali al Naimi, has suggested that a price fall to around $40 per barrel would be reasonable, but as long as Western economies don't buckle under a price of around $50 it's hard to see a compelling reason for OPEC to allow it to fall much below that level.
Oil prices have doubled in the last two years and it hasn't affected the world economy all that badly. However, the most recent increases are finally impacting on consumer prices.
Until now, competitive economic pressures (particularly in the US) meant that producers were absorbing increased costs, but they are finding it increasingly difficult to do so and the US consumer price index showed a 0.4 per cent increase during February.
The Fed has commented that the impact of higher fuel prices hasn't "notably" fed through to core consumer prices but unless we see a greater balance between supply and demand that will happen soon.
The US Department of Energy announced that last year's average spend on heating oil was $953 whereas it expects this year's spend to be nearly 30 per cent higher. It will, perhaps, be easier to economise on driving than on home heating.
Oil production is in the hands of a cartel. Oil pricing is determined by demand and production levels agreed by that cartel. As long as they can pull off a balancing act of allowing prices to rise without tipping economies into recession there is no reason for them to change their stance on how they do business.
There may be trouble ahead but, like 30 years ago, most people are only worried about the here and now. That's why the US senate is allowing drilling in Alaska for a paltry 10 billion barrels on the basis of being "independent" of OPEC. As if.
