News roundup - prices of food, gas and electricity, and OPEC output

A few interesting news stories in recent days.

The Telegraph reported that food prices are rising at the fastest pace in 23 months in the UK. What's this got to do with oil? Well, here's some quotes from the article:

Disappointing crops and demand from the biofuel industry have helped corn prices rise 112pc in an year and wheat 72pc.

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Rising energy prices have also pushed up the costs experienced throughout the supply chain, said the BRC.   full article

So there you go, flat or falling supplies of conventional cheap crude oil are boosting food prices through increased demand for biofuels and also through the energy used in growing, processing, transporting, storing and selling food. Expect more of this to come - it is not a 'blip'.

Moving onto gas and electricity, several weeks ago I was warning on this blog of rising prices, and since then the price of wholesale gas in the UK has been hovering around 2p/kWh, which is getting on for double what it was a year ago. So, it was only a matter of time before this fed through into domestic bills. Scottish and Southern has been the first to move:

Scottish Power is to raise the cost of gas by 19% and the cost of electricity by 10%. The utility firm said the increase, which would affect 2.4 million households in the UK, would come into effect from 1 August.

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Scottish Power's latest rise will mean that customers who take gas and electricity from the company but pay quarterly by cash will see their annual bills rise by an average of £180 to £1,391.   full article

So if you needed another incentive to improve your home's energy efficiency and reduce your reliance on fossil fuels, now you have it.

So what next? Well, OPEC have today announced that they are not going to boost levels of crude oil production, so the price of oil has ticked up another dollar or so. Of course, it may all be academic - nobody really knows if Saudi Arabia actually has any spare capacity, and if it does, how long it could be maintained...

And finally, all of this feeds into inflation, which makes it ever harder for the Bank of England to resist raising interest rates. But if they don't and inflation stays high, then they are effectively taxing everyone's savings and delivering real-terms pay cuts to anyone whose pay isn't going up by 5 or 6% a year...

Mike

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An Inconvenient Truth about OPEC

An interesting article over on Project Syndicate, here's a few paragraphs:

In forecasts that carry forward to the 2030’s, the three organizations [IEA, EIA and OPEC] share the view that world energy demand will increase, that developing countries will account for most of the increase, and that fossil fuel will remain dominant. They also agree that dependence on oil from OPEC members will increase as non-OPEC oil resources dwindle and become more expensive to extract. But a major flaw in modeling world oil markets makes these forecasts as unrealistic as a projection that humans will land on Mars tomorrow.
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It is nearly impossible for OPEC members to produce the difference between estimated world demand and non-OPEC supply. For example, in its recent forecast, the EIA’s base-case scenario is that, by 2035, OPEC will add about 11 million barrels of oil a day (mb/d) to its 2010 output. Is this possible when production is declining at a rate of at least 3%?
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Indeed, given the expected growth in energy demand in the next two decades, and the possible – even likely – shortfall in OPEC supply relative to the projected “call on OPEC,” the term “alternative energy” will lose its meaning. The only “alternative” to harnessing all feasible energy sources will be a slow-growth world of permanent shortages and increasing misery.

Mike

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