What is going on with the oil prices? Info-Prim Neo economic commentary

The rise of the fuel prices on the Moldovan market proves a truth difficult to question: Moldova loyally mirrors the world economic developments, especially on the segment of establishing the fuel prices. The last hike in the fuel prices occurred on May 1, while they whispered information earlier this week about a new 10-per-cent rise of the diesel fuel price and about a 7-per-cent price of the gasoline price. This hike finds us accustomed with the changes of the figures at pump, although, one must acknowledge, another solution for such kind of situation simply is not to be found. It is clear that the selling price of these products depends on the import prices, first of all. During the first quarter of this year, the import diesel fuel price rose on average, compared with the first quarter of the previous year, by 62 % – from $566.4 per one tonne to $916.6. The gasoline rose by over 54%, reaching $857.2 per tonne, while the liquid gas – by almost 58 per cent ($787.7 per tonne). The first months of this year saw a surprising stability of the prices on the domestic market. Only in March – on the 5th and the 20th – the diesel fuel recorded two hikes - by 5.9 and, respectively, by 6 per cent, while the gasoline got cheaper by 2.3 % and, respectively, by 1 %. Thus the diesel fuel cost 13.25 lei/liters in March, and the gasoline – 13.14 lei. Worth to mention is the fact that the price of the diesel fuel was higher than the one of the gasoline for the first time in Moldova's history. Yet on May 1 we saw a change of figures – the gasoline is sold at 13.85 lei/liter, while the diesel fuel but copies the gasoline price. Thus, the recent modification of the prices is the fourth this year, although it would be fairer to say it is the fourth hike in only 5 months. The growing rhythms practically have no precedent, as the same number of hikes occurred in 2006, while in 2007 the prices changed but three times. The situation is strongly influenced by the world general picture. The prices grow both at regional and world levels. Five years ago, the Moldovan importers used to buy the tonne of gasoline at $259 on average, and the diesel fuel at $232. Now the importing price at the customs office is $1,254 per tonne of diesel fuel and $1,100 per tonne of gasoline. If someone still remembers, it was in 2003 when the gasoline was not more expensive than 5 lei a liter. A reality hardly to imagine today, the same as what is going on now was difficult to forecast 5-10 years ago. [Why nobody hears Hubbert's bell?] The oil started to be extracted for commercial purposes in 1859. Then the world had less than 1.5 billion people. 150 years later, the world's population blast up to 6.5 billion. Meanwhile we managed to use half of the world's petroleum. According to some estimations, the other half – still not extracted – could be consumed in 50 years at most. On the other hand there are opinions that the present rhythms of the price growth will make its extraction impossible or useless in the best case. The calculations show that to extract, process and transport 10 barrels of oil, one uses between 0.17 and 1 barrels of oil. Some way or another, the present situation on the world's fuel market was anticipated by a series of analysts and politicians. In a speech in 1999, the US Vice President Dick Cheney said: "According to estimations, the oil demand will grow by about 2% annually in the coming years. At the same time, the natural decline of the production will be about 3% per year. This is means we'll need 50 million barrels in 2010”. Shortly later, according to some assessments come from the oil industry, the gap between the demand and the offer was expected after 2007 and this points out including the year we are in now when are sights eye the prices on the world markets and the gas stations. Obviously, the price jump tells of a crisis situation, but it is a situation by no means temporary and can have very painful consequences for humankind. According to some estimations, the oil industry has been standing for several decades at the so-called Hubbert's peak. A geologist for Shell, dr. Marion King Hubbert, predicted in 1956 – and it proved to be true – that the production of oil extracted from the USA was reach its peak in 1970. He also predicted the peak of the world production in 1995 – a prediction that is late some 10-15 years or even 20. Schematically,“Hubbert's peak” is nothing but the shape of a bell, as the curve show that the production rises rapidly at its basis, then slower and slower by the peak. The peak coincides with the point when we extracted 50 per cent ODF the oil reserves. After overcoming the peak, the production starts decreasing, while the prices start growing. Consequently the demand si going to overcome oil production with a ratio difficult to overcome. This bell of Hubbert has sent clear alarming signals for years. Yet, the world seemed not to hear it and simply cannot decipher them. In order to be clearer, one supposes “the oil peak” for our civilization can be compared with the dehydration of the human body. As the water is essential for life, it is not necessary that man loses all the water from his body to die! Several kilos are enough! Similarly an economy based exclusively on oil will crash much earlier than all the oil reserves end. An imbalance of about 10-15 % between the demand and the offer suffice to lead to the economy's collapse. The dehydration of the world, economy started long ago. Now the extraction rate exceeds some five times the rate of discovering new reserves. As the question of this article is “why do the fuels get more expensive?” it would be unfair to mention here the natural causes, the military interventions in different areas (especially in the ones with important reserves), the political and economic interests of the great powers, others than the ones mentioned above. Yet the main cause remains the excessive consumption. Although we'll deal with data from older statistics, anyway they mirror a state of things similar to what we have today. In 2004, the world daily consumption was 83 million of barrels. The annual world consumption - 28 Gbarrels. The USA daily consumed 23 million barrels on average – a quarter of the total. On the other hand, in 2003 China was consuming daily 2.1 millions barrels, and only a year later – 3.02 million: a 50% rise. China recorded anincrease of the number of cars produced locally of over 1,000% from 1999 to 2004. [How much oil is still there?] To make forecasts in the oil industry is difficult, if not impossible. The oil companies do not make public their reserves, neither their secrets about the oil fields. The oil divides in very many categories and each country or world organization has different measuring standards and even names. After the Laherrere-Campbell calculations, by the end of 1996, the world had about 850 Gbarrels left of P50 (P50 meaning 50% of chances). More or less – now the figures almost had not importance. Important is a future not smelling to much of gasoline. The Saudi Arabs have a saying: "My father rode a camel. I ride a car. My son pilots a jeep. His son will ride a camel." The Arabs say no words in vein. All the more than the world's large reserves are right under their camel's hoof. [The problems is Moldova's as well] According to experts from Business Expert, at a market price of $200 the barrel, a liter of gasoline could cost $1.80 . While a report of Golden Sachs points out that the oil price could reach up to $200 the barrel the coming six months, if the demand goes on rising. Any 10 % increase of the crude oil on the world market triggers a hike of 2 - 3% of the price at pump in Moldova. The oil price exploded after going beyond a record high $122 on May 5, and two days later only it neared $124 and $125, to reach $126.2 at the New York Stock Exchange later that week. In the first quarter of the year, a 12% drop of the oil fuel imports was noticed, although the data mirror a continuous increase of those quantities. If in 2006 the importers brough 122,600 tonnes of gasoline to Moldova, then in 2007 the import was 144,200 tonnes. The diesel fuel imports have the same growing trends. In general, the rhythms of the increasing imports are about 10 per cent, including the ones forecast for this year, although the price hike could correct some figures. What is extremely clear is that the Moldovan oil products market is strongly influenced by the regional and global phenomena in this area. No matter how sad and unwanted, the prices will go on rising, while the importers, sellers and other actors on the market cannot influence the situation at all. The problem belongs to the times we're living in, and we don't choose this time, not we. We chose the oil as an essential element of our development, but it turned out that this element is limited, anyway.