Oil is expensive because oil is scarce

3 May 2008 - Polishing the portholes on the Titanic hardly does it justice. This week saw ministers giving an uncanny impersonation of Corporal Jones urging calm over the Grangemouth refinery strike; lorry drivers protesting in Park Lane over a two pence rise in fuel duty; and much righteous indignation over the level of profits reported by Shell and BP. All of which entirely misses the point. These issues are trifling compared to global oil depletion, where there have been several distinct turns for the worse in the last month.

The idea that oil companies are somehow 'to blame' for record oil prices and rising fuel costs is seductive but absurd. For all their power and profits, the international oil companies are in fact in trouble. They may still be swimming in cash, but no longer in oil. Despite vast investment in exploration and production, these days they generally fail to replace the oil they produce each year with fresh discoveries, or even to maintain current levels of output. Shell's oil production has been falling for six years, BP's seems to have peaked 2005, and this week even the mighty Exxon was forced to admit its output dropped 10% in the first quarter of the year. More >>>