Tax issues and money-grabbing oil companies aside, the simple truth about escalating oil prices is that demand is far outstripping supply. Ian Cundell urges organisations to address their use of oil-based products and, as in the 1970s, to look at ways of cutting down
What do these three events have in common: disgruntled truckers bringing the country to a standstill, the 1973 Arab-Israeli war, and brownouts in Silicon Valley? Oil of course.

Probably for the first time since the 1970s, both the public and the business sector have been spellbound by the price of oil. The refinery blockades made thoroughly entertaining television and news copy, but the quality of the analysis has been disappointing, focusing on the political aspects when a little more attention should have gone on the economic. Tax really should have been a side issue.

It was only a couple of weeks before the protests that we read about an energy shortage in the Silicon Valley hothouse. And there were dire warnings that the same would happen here. You may ask what that has got to do with the price of oil. Everything.

The brownouts and $35-a-barrel crude have exactly the same cause: rising energy consumption. The boom in all things ‘e’ has massively increased the need for electricity. I do not know what proportion of Silicon Valley’s power stations are oil fired, but I’ll bet it is significant. Excuse the GCSE economics, but when demand exceeds supply, prices rise.

But think about it for a minute. I’m pretty sure that when OPEC hiked the price of oil in 1973, it was to $10 a barrel, from around $4. That, of course, was a huge leap. So, we are now up to 1970s levels of increase.

Now, factor in inflation. In real terms, oil is probably the same price that it was after the Middle East war, and we are feeling the pinch, whatever the tax rate. Only two years ago it stood at $11 a barrel.

How long before we are hankering after the good old days of £50 to fill a petrol tank?

The difference is that this time the increase is down to market demand, not politics. To be blunt, we have got far too used to cheap energy. If I have interpreted BBC reports correctly, unless Saudi Arabia finds more capacity and there’s a sudden outbreak of democracy in Iraq, there is limited prospect of supply matching demand. Most oil producers are operating at or close to capacity. Unless there is a significant global recession, it looks like oil prices are going in only one direction.

By all means, take heed of the one lesson from the oil blockade that has been noted on the Nine O’Clock News: just-in-time delivery does have its limits. Perhaps there is something to be said for maintaining stocks, after all. (Watch out for Just-In-Time Plus.)

But this urgent issue could prove minor compared with the important one that is brewing. Suppose the government cuts the fuel tax rate soon. What happens if oil rises to $40 a barrel? Or catches up in real terms with the 1981 price – that would be about $60? How long before we are hankering after the good old days of £50 to fill a petrol tank?

From a facilities point of view – indeed, all the way up to the board of directors – the issue should be compelling. How much of what you do depends on oil? And that is not just an energy-consumption question. If crude prices are being driven up, the price of petro-chemicals will be pushed up. Start from your choice of cleaning fluid and work from there.

Source

The Facilities Business