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Increasing oil prices could end economic recovery
Gas prices in the $3.00 range are displayed at an Arco gas station.
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TEXT OF INTERVIEW
STEVE CHIOTAKIS:: You may've noticed at the gas station, the price keeps going up. But here we are with a global recovery trying to take hold, and the increasing price of oil could send that recovery into a tailspin. That's the warning this week from the chief economist over at the International Energy Agency.
Fatih Birol says around the world, higher oil prices mean people will be be spending more money on gasoline. And less on everything else. Mr. Birol, good morning sir.
FATIH BIROL: Good morning to you too, thank you.
CHIOTAKIS: We've seen higher oil prices before though and the economy seemed -- at that time, years ago -- seemed to be just steam rolling along. Why are we concerned now?
BIROL: Last time we saw this level of crisis was in the year 2008. And of course the oil crisis was not the primary driver of the financial crisis, but they did play a key role in the run up to the financial crisis by reducing the business and household income.
CHIOTAKIS: This seems sort of like a vicious cycle -- economic recovery that's demanding more oil, and then that sends the prices up -- are you saying that maybe this is a catch-22? That this could just keep happening over and over?
BIROL: The age of cheap oil is over, especially if the major consuming nations such as the United States and China do not move from oil-based mobility transportation system to an alternative one.
CHIOTAKIS: Do you have any predictions -- say a year from now -- where will oil prices be?
BIROL: By law, I cannot make any forecasts, but I hope we do not see the levels that we saw in 2008 because the demand is expected to be very strong. And if the producing countries do not respond by increasing their production this may well mean higher prices than we have now.
CHIOTAKIS: Fatih Birol, chief economist at the International Energy Agency joining us this morning. Thank you sir.
BIROL: Thank you very much.
"The age of cheap oil is over." Is it? That's what they said 5 years ago, yet today there are more proven oil reserves then ever before and oil prices on average are only about $5/barrel more then they were 5 years ago. And what about inflation's effect on oil prices? QEI? QEII? The coming QEIII?
In 1902, Lord Kelvin asked, "The enormous amount of coal required to run our great ocean steamships, our leviathans of the deep, and the innumerable factories of our cities is making such inroads upon the available store that nature cannot forever supply the demand. When all the coal of the earth is used, what then?"
The answer? We found more coal, more efficient uses of coal, and alternatives to coal. And by we, I don't mean some government. I mean we, the people, the market. Contrary to popular belief, we can live without government guidance. Contrary to popular belief, we have not yet run out of any natural resource. In fact, over time we have had far more available.
I'd like to hear the alternative to stories like this once in a while. Chiotakis should look up Julian Simon and maybe read his book.
