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The positive side of high oil price
Peak oil or freak oil? The current oil shock, with Nymex crude touching $142 on Friday, has as much to do with bad luck as geology. And, as usual with luck, man has largely made his own.
- Financial Times
- Published: 23:41 June 29, 2008
Peak oil or freak oil? The current oil shock, with Nymex crude touching $142 on Friday, has as much to do with bad luck as geology. And, as usual with luck, man has largely made his own.
The central theme of this decade's bull market in crude is little different from previous oil shocks: a change in expectations about future supplies. In other words, many think we have enough oil today but might not tomorrow.
A series of largely man-made disruptions has fed that fear. In countries such as Russia and Mexico, resource nationalism has stifled investment in supply. Violence in Nigeria and Iraq has shut down fields.
The Energy Policy Research Foundation estimates the world's lost output of up to 4.5 million barrels a day is the equivalent of twice the world's effective spare capacity.
Whether the problems are below or above the ground, the result is the same: fewer barrels available. The distinction, however, is important - if only because humans, even politicians, can alter their behaviour. When oil prices are rising, producers have an incentive to keep markets tight.
But, eventually, expensive oil encourages conservation, new investment and the search for alternatives. Meanwhile, protectionism breeds inefficiency.
Russia and Mexico, for example, are taking steps to reduce oil taxes or attract foreign companies, respectively, to address stagnant or falling output.
The same point extends to the demand side. In the US, high oil prices prompt drivers to buy more fuel-efficient cars.
Meanwhile, even if Asia's drivers are becoming richer, they will never reach America's currently bloated per capita usage of oil. Governments across Asia are already cutting expensive fuel price subsidies.
Shocks are occasionally necessary to change human behaviour. High prices are painful, but will ensure the world does not run out of oil.
Apple vs Blackberry
Will Apple make BlackBerry crumble? Investors are worried that Research in Motion, the maker of the smartphone no investment banker leaves home without, is straining under pressure from Apple's iPhone.
RIM's shares slumped by 12 per cent on Wednesday after issuing second-quarter earnings guidance just shy of the consensus forecast.
With RIM's stock trading at a giddy 37 times 2008 earnings, it is understandable that even the slightest disappointment elicits a swift, sharp reprisal from investors. But the specific threat from the iPhone looks overplayed.
The launch of a faster, $199 version next month will no doubt tempt millions more new converts into the cult of Apple. Some 60 per cent of RIM's net new subscribers in the last quarter came from outside the corporate world.
RIM is not sitting on its hands, though - weaker guidance reflects higher spending to push out a range of new gadgets. And the bulk of RIM's subscriber base of 16 million remains business users, who tend to be stickier because of the hassle of restructuring corporate IT systems.
RIM has two bigger problems. First, Apple is only one of several competitors jostling for share in an increasingly crowded market.
Hence, Nokia's recent defensive move to take control of Symbian, which writes the software that powers more than half the world's smartphones.
RIM's other near-term challenge is the economy: North America accounts for two-thirds of its subscriber base. More effort for growth in Europe and Asia, where RIM's share is less dominant, is needed.
RIM has considerable strengths - its main product is dubbed the "CrackBerry" for a reason. Moreover, a smartphone market expected to increase at 45 per cent per annum during the next few years should lift all boats.
But the competition for a fickle consumer's attention means higher spending and lower margins will fast become permanent features of the sector.
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