The World Oil Market Meets Grandpa John
First, a word about Grandpa John Gardiner. I got a call the other day and it was Grandpa John. Around my house that means my father, but this time it was different. As I’m sure all of you by now publisher John Gardiner’s daughter Rebecca and her husband Ryan had a baby boy a few days ago. John called to tell me. He was a very proud Grandpa.
John, we go way back to 1978. We were students together at the University of Guelph. What the heck is going on? Grandpa! Where did the time go? Yes, we earned it, every moment. Too weird! Congratulations John!
If little Isaac could have a conversation this week with his Grandpa I’m sure when they weren’t talking about Thoreau and Sir Edmund Burke, the price of oil might come up. I’m sure its one of John’s pet peeves. Last Monday the price of oil settled above $70 a barrel.
This might lead to Grandpa John to call me in the field this coming June exclaiming that gas prices are $1.50 a litre. What’s up with that? Rest assured I’d tell John, with burgeoning world demand in India and China the days of cheap oil are over. There are just too may SUV’s on North American roads and all those folks in Asia want to trade in their bicycle and get one too. New technology might be our only answer.
So what is up this time? Why is the price of oil once again testing new highs? The experts say is all to do with the sabre rattling currently going on over Iran and their nuclear ambition. There is also some nervousness over supply from Nigeria. Concerns like these makes futures prices jumpy. Only a slow decline in demand over several years will bring back the good old days of cheap oil.
You might remember crude futures first surpassed $70 a barrel in the immediate aftermath of hurricane Katrina. It was on Aug. 30, oil prices climbed as high as $70.85 a barrel during the day, and then settled at $69.81.
I can just feel Grandpa John’s blood starting to boil. He’d say something like this. “Phil, its all corrupt, if it was up to me I’d have a “2006 National Energy Policy” to keep a litre of gas at 10 cents a litre.” Great thought, but unfortunately our economic world doesn’t always work that way.
In Amsterdam a US gallon of gas is $6.48. In Copenhagen Denmark, the price is $5.93. In London England the price is $5.80 cents. In Caracas Venezuela the price is 12 cents. In Lagos Nigeria the price is 38 cents. You can learn more about world gas prices by clicking on http://money.cnn.com/pf/features/lists/global_gasprices/
So the price of gas, which is highly dependent on the price of the oil, seems to have a life of its own. Governments around the world have prostituted themselves on taxing energy. Consumers especially in North America refuse to conserve in a way, which will reduce its consumption. With our economy in overdrive the nature of this energy market doesn’t look to change soon.
Still, maybe these prices aren’t what they seem. On an inflation-adjusted basis, oil prices would have to jump above $90 to exceed the all-time highs set a quarter century ago when supplies tightened over the war between Iraq and Iran. In 2005 dollars, the average price of crude in 1980 was just under $77 a barrel.
This is the truth, however our world 25 years ago wasn’t as energy efficient as it is today. So in other words when Grandpa John and I were roaming around as students back in the early 1980′s we were burning up energy like bandits and paying through the nose for it. Thankfully at the time we were students.
Of course today we are businessmen. I burn all kinds of fuel in my car, truck, tractors, combine etc. John is burning up the roads running cktimes.ca. I’m producing crops, which are very energy intensive. Corn for example takes a lot of nitrogen to mature. Nitrogen is made by using lots of natural gas. How I’ll ever make a profit growing corn this year, I’ll never know. Ditto right across North America.
You can bet our Bank of Canada has its eye on the price of oil. On one side are the consuming provinces in central Canada. The other is Alberta growing rich on oil. Finding a monetary policy, which will work everywhere, will be the challenge.
So it is what it is. Does that mean a $1.75 a litre gas price is in our future in 2006 or 2007? I dunno. However, I’m sure Grandpa John will be one of the first to tell me.