‘Paradoxically, the very worst outcome [for oil prices] might not be a sudden shock, but a milder recession. If this were to create some temporary spare oil production capacity by depressing demand, … the urgency of the need to prepare for the impending peak could easily be forced off the policy agenda…
As the global peak approaches and the market tightens, any sudden interruption of oil production could [then] spark the last oil shock.’
David Strahan (2007) — The Last Oil Shock (p. 177)
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In early 2009, I described the dramatic rise and fall of the oil price associated with the financial crisis of 2008, and looked at the future oil price trends which might follow recovery through into 2010.
Two years on, economic uncertainty remains, and a return to growth is far from guaranteed. Yet across this time, the oil price has risen steadily. From a low of $40 in February 2009, Brent crude stands at well over $120 today.
The last time when the oil price was above $100, back in 2008, the economy was still booming. Three years later, during the long aftermath of the deepest global recession for eighty years, the oil price remains close to historic highs. How can this be possible?