Thursday, May 12, 2005

The Economist Ignores Peak Oil

Rajesh Jain at Emergic, has a post pointing to this article from The Economist. The article talks about why oil prices are high and takes a pragmatic view based on economic reason with no mention of peak oil. There are some interesting points being made though:

1. The 16% increase in Chinese demand for oil last year was a temporary phenomenon. It could be a more sedate 4-5% this year.

2. It is not just OPEC that has a stake in keeping oil prices high. The big western oil companies that are investing in non-OPEC regions with tough terrain - they need high oil prices to make a profit.

3. Saudi is rebuilding the oil buffer which could help further cool down oil prices.

4. The joker in the pack could be the financial sector - big investors have invested heavily in oil expecting prices to remain high if not reach much higher. These investments have some of the makings of a bubble. If this bubble collapses we might have cheap oil again.

Finally in the post, Rajesh quotes from another article (which is premium content) on how alternate energy sources are making headway into the automobile world. Mentioned are bio-diesel, natural gas and hydrogen-based fuel cells. GM it seems is betting on fuel cells.