[Marxism] Gazprom head: oil will hit $250 per barrel

Louis Proyect lnp3 at panix.com
Wed Jun 11 07:23:03 MDT 2008

An ominous warning that the rapid rise in oil prices has only just begun

By Danny Fortson, Business Correspondent
Wednesday, 11 June 2008

The chief executive of the world's largest energy company has issued the 
most dire warning yet about the soaring the price of oil, predicting 
that it will hit $250 per barrel "in the foreseeable future".

The forecast from Alexey Miller, the head of the Kremlin-owned gas giant 
Gazprom, would herald the arrival of £2-per-litre petrol and send 
shockwaves through the economy. His comments were the most stark to be 
expressed by an industry executive and come just days after the oil 
price registered its largest-ever single-day spike, hitting $139.12 per 
barrel last week amid fears that the world's faltering supply will be 
unable to keep up with demand.

Mr Miller's prediction is well beyond even the most heady market 
forecasts, the most extreme of which fall between $150 and $200 per 
barrel, and was explained only by vague references to demand from the 
developing world. It nonetheless stoked an already febrile atmosphere of 
growing public anger across Europe over a soaring fuel cost that is 
wreaking havoc at nearly every level of the economy.

The British Government was urging motorists yesterday not to panic-buy 
petrol in anticipation of a strike on Friday by lorry drivers who 
deliver petrol to forecourts for Royal Dutch Shell, assuring motorists 
that contingency plans would ensure sufficient supplies.

In Spain, the regional government of Catalonia enacted an emergency 
action plan to bring in fresh food and fuel supplies after nearly half 
of its forecourts ran dry and supermarkets shelves were left bare. The 
situation was the result of the second day of an "indefinite" nationwide 
strike staged by lorry drivers in Spain seeking their government's help 
to contain the effects of expensive petrol. Scattered protests by 
drivers and fisherman in France and Portugal also continued yesterday.

In a speech to the European Business Congress in Deauville, France, Mr 
Miller offered little prospect of relief. He warned that the world was 
experiencing a fundamental shift in energy prices that will end at a 
"radically new level. We expect that the oil price will approach $250 
per barrel in the foreseeable future".

Philip Shaw, an economist at Investec Securities, warned that oil at 
that level would exert an extraordinary drag on the economy at a time 
when it is already decelerating at a rapid rate. "The word is ouch," he 
said. "Forecasts are forecasts though, and I think it should be treated 
with some level of scepticism."

The most visible result of $250 oil would be at the petrol pump, which 
is already at a record 116.9 pence per litre for unleaded. Because more 
than half of that price, about 68p, is due to duty and taxes, the 
general rule of thumb is that each $2 increase for oil means a 1p 
increase of petrol at the pump. Oil at $250 a barrel would mean an 
increase of almost 60p in petrol prices, even before VAT.

The price of everything from food to energy would see significant price 
rises. Household electricity and gas bills are particularly vulnerable. 
Power companies have begun warning of a second round of major tariff 
increases for household bills this year that they say they will need to 
push through just to break even.

Mr Miller placed some of the blame on financial speculators for oil's 
price rise – it has more than doubled in the past year – but said that 
the primary reason is simple supply and demand, driven by the rapidly 
expanding countries of the developing world, principally China and India.

It is a view shared by the International Energy Agency. In its monthly 
oil report, the developed world's energy watchdog said yesterday that 
the "abnormally high prices [for oil] are largely explained by 
fundamentals". But whether the price of oil will reach $250 is uncertain 
at best. Most expect it to reach a breaking point before that figure. 
The IEA said that the high price would eventually "choke off" demand and 
a balance between supply and demand would return.

What is certain is that for Europe, Mr Miller's role will become 
increasingly important as head of the continent's single biggest gas 
supplier. He also warned against "protectionist tendencies" in Europe, 
where worries have grown that the company is being used as a blunt 
negotiating tool of the Kremlin. "The relationship between Gazprom and 
Europeans is one of mutual dependence. We rely as much on European 
consumers as they depend on us," he said.

"In all frankness, I am concerned about certain protectionist tendencies 
resurfacing in the EU ... How wise it is that the European Commission 
invents an 'anti-Gazprom clause' to keep investments which are so needed 
for more efficient satisfaction of raising demand."
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