My lesson in economics of oil

BY JOE BENNETT

OPINION: That noise you hear is the clatter of horses' hooves. The horses come from the last chapter of a 2000-year-old book that still outsells the similar, though worse-written, Harry Potter.

They are the Horses of the Apocalypse. And they have names. Those names are The, and Price, and Of, and Petrol. Oh, hear those drumming hooves. Oh, feel that hot breath on your neck.

But before they herd us over the Cliff of Extinction into the Chasm of Bones, let us try to be calm and anatomise the four dread beasts. And who better to do so than one of those readers of the contemporary tea leaves, an economist?

So, regardless of expense – why husband money when the end of the world is at hand? – I hired an economist so freshly qualified from the University of the Internet that the ink was barely dry on his framed diploma. I wheeled him in and I sat him down and I grilled him.

Tell me, I shouted above the din of hooves, why the price of petrol is soaring like the lark. Why, every time I stop at the pumps, someone is up a ladder changing the price. It's killing me, Mr Economist. My car is not a luxury, but a necessity. Without a car this town is uninhabitable. The mall where I worship is too distant to walk to.

What's to become of my life, not to mention its associated style?

The economist shrugged.

Is there a shortage of oil, Mr Economist?

I know that all the prosperity that I take as my right has grown from cheap energy, the energy stored long long ago when trillions of little sea creatures laid down their lives in the sedimentary rocks and kindly composted themselves into 91 octane petrol.

I KNOW, too, that we have been profligate with those creatures' remains, that for a century or so we have spent them as casually as Mrs Beckham spends dollars.

I know too, we all know, naggingly, that oil is finite, that the day of no oil must come, but it isn't now, is it?

Are we scraping, at this very moment, in 2008, the last smears of the dead from the bottom of the oil barrel?

The economist shook his head.

In that case, have we reached what the sandal-wearers and bearded women have been warning us about? Have we reached Peak Oil, the beginning of the end which is worse than the end itself because it marks the start of a shrinking and dwindling that can lead only to war on a global scale, as the billions of poor who have nothing to lose take on the millions of rich who are unwilling to give? Have we reached that point?

Again the economist slowly shook that great sagacious head.

So if, right now, there is no actual shortage of oil, if there is enough for everyone who wants it to get it, why is the price rising so cruelly and swiftly? Are you going to blame that amorphous entity the market, the point where buyer meets seller?

The economist nodded, vigorously, eager to confirm that I had struck the nail unerringly on its bright little metal head.

Then let us consider the oil companies, I said, like BP or Royal Dutch Shell. They sell petrol. But they also drill for oil. They suck it from the sands or the sea bed and they refine it and they pipe it into those great sausage- like tankers that crawl about our roads like potential infernos on wheels and they deliver it to petrol stations that they themselves own in order to sell it to us. Have I got that wrong?

The wise head shook.

So when we buy that oil it is being sold for the very first time. In other words we are the market. And yet we have no power to bargain. Only today at my local BP station I told the man I'd pay $1.50 a litre and no more. He laughed. He fell about laughing.

The economist chuckled.

Well, I have done some research, my money-understanding friend, and found that in the first three months of this year, and that's before the price really took off, BP and Shell made a combined profit of about $18 billion.

That's eighteen thousand million dollars in approximately ninety days.

That's 20 million dollars a day, or in excess of eight hundred thousand dollars an hour, assuming they work around the clock and on Sundays, which at that sort of hourly rate they probably do.

The oil company costs have not risen. So are they charging us more simply because they can? Or is there some other explanation?

The economist opened his mouth at last to speak but at that moment hooves clattered through the roof of my dwelling and suddenly, much to my relief, we arrived at the end of the . . .

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