Oil Price Crisis: Market Sentiment or New World Order?

The record oil price of $135 a barrel is due to “market sentiment” rather than a shortage of supply, according to Shell’s chief executive, Jeroen van der Veer.

“What we say and what we see is there are no physical shortages,” said van der Veer. “There are no tankers waiting in the Middle East, there are no cars waiting at gasoline stations because they are out of stock. This has to do with psychology in the markets and you cannot forecast psychology”.

His view that there are no shortages chimes with that of other oil producers, such as members of the OPEC. Others, such as the U.S. government and IEA say supply is tight and the days of cheap oil are over.

“The high-priced energy environment is being driven by the fact that demand has outstripped supply,” President George Bush’s Energy Secretary, Samuel Bodman, said yesterday. “We have sopped up all the available spare oil production capacity in the system … and there is no silver bullet that will immediately solve our energy challenges or drastically reduce costs at the gas pump.”

Meanwhile Fatih Birol, the IEA’s chief economist, said the oil industry had entered “a new energy world order” where it was harder to keep supply and demand in equilibrium. “When the price went up as a result of the Iranian revolution, demand went down,” he added.

He continues: “But what has happened in the last few years has not been in line with economic theory. The price of oil went up sharply between 2004 and 2006 and demand actually increased. That may seem bizarre but it is the result of new buyers coming in, such as China and the Middle Eastern economies where fuel is subsidised by government and rises are not reflected on the consumer side.”

So what do you think: Are we running on empty??