Sorry, a bit pushed for time today, so a cut-and-paste job (prompted by an email from Ben - feel free to add your own 'firm' views in the comments page ;-) from a recent discussion on future oil prices.
"Demand destruction" is one of those buzz-phrase memes that gets propagated without (I believe) really considering its validity. Usually by people on wireless bluetooth headsets. Here is my take on it....
Some interesting and valuable comments made here. I would just like to add mine on the "demand destruction" phrase that has been wheeled out and repeated a great deal in recent press.
True demand destruction can only happen in markets that are either non-essential, or where substitution options exist. Neither is the case with oil. It is so much a part of the fabric of our way of life and economies that any demand erosion will be temporary.
The recent grounding of planes by various airlines is not the destruction of demand for jet fuel. Air travel will continue, and once the airline industry has found a way to come to terms with crude oil above $100 those planes will be back in the air. American motorists might curb their driving habits this year, but they will ultimately accept Gas at $4 a gallon, or $5, or $8. In the UK Gas is $10 a gallon and I'd wager that $20 would have little more than a short term effect.
The industrialisation, urbanisation and improving lifestyles (not to mention exponential global population growth) of the emerging economies will only serve to increase demand for what are ultimately finite resources. Until we find a way to substitute our intimate dependence on
oil, there will be no "demand destruction", and only temporary respite from inevitably higher prices.
4 comments:
My main concern is the price of ice-cream bought from a van .....
Sorry for the slow response, DP, I have been off trying to corner the ice cream van market, with little success sadly... it never occurred to me that all those vans run on oil..... ;-)
Sorry, I tried to comment on the latest addition to your blog, but had some technical difficulties! Here is the comment:
Yes, I believe people would be willing to accept the inevitably rising prices at the petrol pump - perhaps even to the tune of twice what they currently pay - and still only display their discontent with a few venomous letters to the comment sections of the national newspapers and perhaps a misguided (ineffectual) protest vote come the next elections. What WILL (I believe) provoke more drastic action is the subsequent price hikes in other domains. British Gas, for example, have just announced a large increase in customer charges and many of the most vulnerable in Britain are seriously worried about the so-called 'heat-or-eat' scenario that might await in the coming winter. A significant rise in petrol prices will also put a huge strain on the hauliers (those who fill our shop shelves) and this extra cost will have to be paid, ultimately, by the shopper - who has just received a final demand in the post from the electric company.
Worrying times for many people (even in a well-developed, embarrassingly sheltered country like Britain). The light at the end of the tunnel seems a very long way away...
As an additional:
Everyday, the BBC slip in the latest current or potential disaster, yet still don't dare mention PEAK OIL.
Today's catchy little headline:
"New nuclear power stations now looking very unlikely after EDF pull out of deal to take over British Energy - will this mean the beginning of the end of ELECTRICITY?"
"Also in today's news: British Airways future in doubt after an 88% drop in profits and UK house prices fall hits record levels"
Good points carbisbenjamin.. I think you are right in that the spin-offs of higher energy prices are more likely to spur greater discontent than expensive petrol alone. The fact of the matter is that we have forgotten (as a population) what living with the 'real' price of energy means. The age of artificially cheap energy is coming to an end and it's going to be painful.
And speaking of painful, thanks for the heads up about EDF energy. Sterling has taken a right kicking this morning and it took me a little while to wake up to what was going on!!
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