Dan Box
23rd November, 2009
Sent to me from Rick Balfour, VPOE
The end of the oil age won’t be a pretty thing, but a new report by Deutsche Bank suggests it could be even uglier than we feared…
‘Food and oil, I’m afraid, go hand in hand’
– Deutsche Bank analyst
There’s been a lot of stale argument recently about oil – is it running out? Are we approaching/at/passed Peak Oil (the point when global oil production goes into irrevocable decline)? Business, unsurprisingly, isn’t waiting for the answer; it’s working out what will happen next.
Take the recent report from Deutsche Bank, entitled ‘The Peak Oil Market: Price Dynamics at the End of the Oil Age’. This describes a world where the effect of failing global reserves is compounded by incoherent politics. If the US Government was honest about the cost of oil, for example, it would slap another 50c on a gallon of gasoline to pay the cost of the war in Iraq. Ludicrously, as global oil supplies dwindle, the increasingly precious part that remains is concentrated in the hands of those who give it away to their citizens for almost nothing – Saudi Arabia, Venezuala, Iran, Iraq.
Governments should be planning how best to manage the limited supply of oil sensibly, for the long-term, the bankers write: ‘We believe, based on the history of the past decades, years, and months, that they will do the exact opposite.’
As a result, oil demand – and price – will continue to spiral upwards to a peak in 2016, when a barrel will cost about $175 (it is just under $80 today). At that point – at that price – our addiction will 
broken as people turn instead to cheaper alternatives already gaining ground today, natural gas and the electric car.
But, for all its talk of price, the report fails to mention the cost. As the Deutsche Banker quoted above (he asked not to be named) points out, this is measured in hungry mouths, for food and oil go hand in hand. Take a look at the graphs below; one shows the global price of oil, the other the global price of food. Both go up. Last week’s British inflation figures – a measure of increasing prices, including that of food – were up, sharply, driven by the increasing price of oil. Remember the food riots of 2007-8? Between now and 2016, expect more of the same.
Food prices vs oil prices
