A 'New Oil Order'?
Michael T. Klare has a piece on TruthDig about last month's OPEC meeting in Doha, Qatar, where high expectations of a boost to chronically depressed prices were dashed: "In anticipation of such a deal, oil prices had begun to creep inexorably upward, from $30 per barrel in mid-January to $43 on the eve of the gathering. But far from restoring the old oil order, the meeting ended in discord, driving prices down again and revealing deep cracks in the ranks of global energy producers." Klare acknowledges the geopolitical factor in keeping prices down: "Most analysts have since suggested that the Saudi royals simply considered punishing Iran more important than lowering oil prices. No matter the cost to them, in other words, they could not bring themselves to help Iran pursue its geopolitical objectives, including giving yet more support to Shiite forces in Iraq, Syria, Yemen, and Lebanon." But he sees market forces and the advent of post-petrol technologies as more fundamental...
He thankfully calls out the fallacy of "peak oil"—the notion that the planet's reserves will inevitably be exhausted before demand for oil is diminished. The "peaksters" glommed on to the hyper-priapic prices of a decade ago as evidence of their flawed theory—and have been very quiet since prices have been depressed. In explaining the price decline, however, Klare sounds a little utopian:
As a result of advances in drilling technology, however, the supply of oil has continued to grow, while demand has unexpectedly begun to stall. This can be traced both to slowing economic growth globally and to an accelerating "green revolution" in which the planet will be transitioning to non-carbon fuel sources. With most nations now committed to measures aimed at reducing emissions of greenhouse gases under the just-signed Paris climate accord, the demand for oil is likely to experience significant declines in the years ahead. In other words, global oil demand will peak long before supplies begin to run low, creating a monumental challenge for the oil-producing countries.
We aren't so confident that the Paris climate accord will have such an effect, relying as it does on such mechanisms as "carbon trading"—which still means a license to pollute, even if the accord tightened the rules somewhat. Resolving the climate crisis will ultimately require the world's leading industrial nations to collectively agree to legally binding cuts in their emissions—which would mean trillions of dollars in "stranded assets" for the oil and energy industry. This is an unnaceptable reality for what are still the world's biggest corporations.
Indeed, just after the Doha summit, Saudi state oil company Aramco announced it will complete an expansion of its Shaybah oilfield by the end of May, allowing the world's largest exporter to maintain total capacity at 12 million barrels a day. (Middle East Eye, April 26)
A similarly utopian report on Bloomberg April 6, "Wind and Solar Are Crushing Fossil Fuels," also proclaimed that investment in "clean energy" is now outpacing that in gas and coal by two-to-one. But note that this equation does not include ol—and their charts indicate that their "clean energy" also includes "large hydro," which isn't really clean, thank you. Bloomberg boasts:
Government subsidies have helped wind and solar get a foothold in global power markets, but economies of scale are the true driver of falling prices: The cost of solar power has fallen to 1/150th of its level in the 1970s, while the total amount of installed solar has soared 115,000-fold... Just since 2000, the amount of global electricity produced by solar power has doubled seven times over. Even wind power, which was already established, doubled four times over the same period... Meanwhile, fossil fuels have been getting killed by falling prices and, more recently, declining investment... [W]ith renewable energy expanding at record rates and with more efficient cars—including all-electric vehicles—siphoning off oil profits at the margins, the fossil-fuel insolvency zone is only going to get more crowded...
Well, this is good news—for now. But as long as the economy is predicated on endless growth, expansion of the renewable sector will be in a race to keep pace with expansion in energy demand. And having to compete against renewables as well as each other provides further incentive for producers to glut the market, which means more carbon in the atmosphere. Finally, the boom in US production obviously plays a role in driving down prices.
And this boom is itself driven by geopolitics. From the 1956 Suez crisis to the spike that coincided with the climax of the US misadventure in Iraq a decade ago, the oil price has always closely followed the level of political and military turmoil in the Middle East. Every president since Nixon has declared "energy independence" as an aim of his administration, precisely to free the oil price from the vicissitudes of Middle East politics.
Recall that at the 2008 OPEC summit (just before the price slump), the cartel voted against boosting production. This period saw the start of the push to massively open new lands and waters to drilling in the US—with ecologists scapegoated for perceived American subservience to the Arabs. Today, the Energy Department reports: "In 2015, about 24% of the petroleum consumed by the United States was imported from foreign countries, the lowest level since 1970." And Canada has displaced Saudi Arabia as the USA's top foreign supplier.
So don't be too quick to dismiss geopolitics and embrace the Cornucopian propaganda that "free markets" will bring endless plenty and solve all problems. The oil industry still provides the resource that runs the world economy and determines global dominance, and is still driven by a mandate of endless expansion. It played the card of "energy independence" to fuel the domestic expansion, and the dream now seems fulfilled: there was indeed a modest price spike after the ISIS irruption in 2014, but it was both brief and anemic. So are we, as Klare proclaims, in a "New Oil Order"?
We remain skeptical. Admittedly, it has now been over a year since we predicted:
Don't you worry, once the price slump has outlived its usefulness to the industry majors and Western governments, and/or the danger of economic collapse looms too close in the brinkmanship game, prices will be going up again. Domestic production will be cut, and the Saudis, no longer afraid of losing their market share, will follow suit.
But we didn't put a time limit on our prediction. We continue to believe that at a certain point the pendulum will swing back, and the propaganda will switch from "energy independence" to "peak oil" and scarcity scares. Recall that way back in late 2001, when prices remained depressed even after 9-11, we (accurately) predicted that they would soon rise dramatically. So once again... when the new spike hits, remember that you read it here first.