Home' Trinidad and Tobago Guardian : January 18th 2015 Contents JANUARY 18 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG15
Oil has fallen by more
than half despite
tion. Where did it
all come from?
The world burns enough oil-derived fuels
to drain an Olympic-sized swimming pool
four times every minute. Global consumption
has never been higher and is rising.
Yet the price of a barrel of oil has fallen
by more than half over the past six months
because the globe, experts say, is awash in
oil.So, where did all this oil come from?
The Earth has been accumulating oil and
natural gas for about a billion years or so.
Humans have been drilling and burning
crude and gas in significant amounts for
only the last 156 years, since the 1859 birth
of the oil industry in Pennsylvania.
So, even when oil prices spiked earlier
this decade amid worries that oil supplies
would soon run low, scientists and oil com-
panies knew there was plenty available. It
wasn t so much a question of how much
oil and gas was left in the earth s crust, but
whether we could figure out how to squeeze
it out and make money doing so.
"How much oil we have is an economic
and technical question, not a geologic one,"
says Doug Duncan of the US Geological
Survey. "There s far more than we can extract
economically using today s technology."
More than enough, for now at least, to
sustain record high consumption of 91.4
million barrels per day. There are 42 gallons
in a barrel, so that s 3.8 billion gallons per
day. Looked at another way, it s as if every
human on the planet went through a gallon
of oil every two days.
Since 1980, the world has burned nearly
40 trillion gallons. That s a bit more liquid
than held by Lake Tahoe, the 11th deepest
lake in the world. It s enough to cover the
state of California in oil to a depth of 14
While that may sound like a lot, remember
that Lake Tahoe, on a map of the globe, is
a pretty small dot. There is sedimentary
rock that holds old organic matter under
huge swaths of the earth s crust. Some of
the rock is 20,000 to 30,000 feet thick,
says Scott Tinker, a geologist at the Uni-
versity of Texas s Jackson School of Geo-
sciences. Only a small portion holds oil and
gas, but the scale of the possible resource
That s part of what worries climate sci-
entists so much. Burning the oil and gas
that we ve already found---never mind what
we haven t yet---will lead to dangerous and
possibly catastrophic changes in the earth s
climate, they say.
And we re finding more oil and gas than
we are using. For example, since 1980, even
while we were consuming all that oil, the
amount we ve found, but haven t yet pro-
duced, has more than doubled.
The world s proven reserves are now 1.7
trillion barrels, up from 683 billion barrels
in 1980, according to a closely watched sta-
tistical energy review published by BP.
Technology advances come in fits and
starts, and are usually spurred by high prices.
The price of oil began rising alarmingly in
the early and mid-2000s, inspiring oil com-
panies to take risks to apply new technology
to find harder-to-reach oil.
In 2007 and 2008, they hadn t yet
cracked the code, and consumption was
rising fast, so oil spiked to nearly US$150
They ve now not only caught up to the
growth in demand, but surpassed it. The
big technological breakthrough this time
was the means to tap so-called unconven-
tional resources, especially layers of shale
and other oil-and-gas rich rock.
In the past, drillers had to look for pools
of oil and gas that had collected over mil-
lennia, forced by gravity and pressure from
source rock into what are known as "traps."
Now they can access the layers of source
rock directly, bringing billions of barrels
of this unconventional oil suddenly within
Rising production from these and other
sources, including Canadian oil sands, oil
found under mile-thick layers of salt in
Brazil s deep waters, and Iraq s enormous
fields has for now outpaced rising demand.
That has sent the price of oil under
US$50 a barrel --- it closed Wednesday at
US$48.48 --- after spending most of the
last four years near US$100. That s less
than what it costs to produce oil in many
cases, which means production is likely to
fall slowly until demand can catch up.
That could cause prices to shoot back
up, and we might again wonder where the
next barrel of oil will come from.
"A lot of people thought we were on a
downward supply curve with more and
more expensive oil and gas," Duncan says.
"New technology changed that equation.
We don t know if the equation will be
changed again." AP
It was a surprise, but not a big one, when on
January 15 the Reserve Bank of India reduced its
benchmark interest rate by 0.25 percentage points,
to 7.75 per cent.
The decision to cut the rate was made outside the
normal cycle of monetary-policy decisions, but it
was not unexpected. Raghuram Rajan, the central
bank s chief, had said in December that he was inclined
to cut interest rates soon, perhaps before the next
scheduled policy meeting, if nothing clouded the
rosy outlook for inflation.
Figures released on January 13 showed that India s
consumer-price inflation in December was 5.0 per
cent, lower than forecast. The RBI thus is confident
that it will be able to keep inflation below 6.0 per
cent by next January, as it has pledged.
India s stock market rose sharply in response to
the news, which investors judged to be a decisive
turn in the interest-rate cycle. The timing of the
reduction was widely interpreted as a signal of further
cuts to come-though it might have come sooner, had
the government not challenged the RBI s independence
by nagging it to cut the rate.
It also says something about the business cycle in
India, in comparison with that in other large emerging
markets. GDP in Brazil, Russia, South Africa and
Turkey is sluggish or shrinking. Central banks in such
places are keeping interest rates on hold, or raising
them, to stop foreign capital from leaving and driving
down the local currency.
In contrast the rupee has been stable against a
basket of other currencies. The slump in commodity
prices has hurt some emerging markets, but is a boon
for India, which imports 80 per cent of the oil it
The government of Prime Minister Narendra Modi,
elected with a big majority last May, at last is pushing
for the reforms it had promised. This week the World
Bank stuck with its forecast for healthy growth in
India, at 6.4 per cent for 2015, even as it pared its
numbers for other places.
Bullish pundits reckon that interest-rate cuts will
kickstart a new cycle of business investment, which
has been rather flat. Credit growth has been feeble.
However, the overhang of corporate debt and a grow-
ing bad-loan problem at India s banks is a bigger
obstacle to a recovery in capital spending than the
level of interest rates.
The biggest debtors are power companies, which
face loan rates in the low teens. A quarter-point cut
is not going to make a great deal of difference to their
debt-service costs. Lower interest rates are likely to
have a bigger impact on consumer spending.
Rajan wants to create a more formal system for
setting monetary policy, with a committee to decide
on interest rates. He favours an inflation target of
4.0 per cent, subject to fluctuations of as much as
two percentage points to either side.
The government is expected to announce something
along those lines soon, perhaps when Finance Minister
Arun Jaitley gives what is now being billed as a land-
mark budget address at the end of February.
@2015 The Economist Newspaper Ltd. Distrib-
uted by the New York Times Syndicate
We burn 2.7 million gallons a minute...
So why's oil so cheap?
Bullish pundits reckon that
interest-rate cuts will kickstart a
new cycle of business investment,
which has been rather flat. Credit
growth has been feeble.
...the overhang of corporate debt
and a growing bad-loan
problem at India's banks is a bigger
obstacle to a recovery
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