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Opec chief warns ‘the price of oil could surge to $200’

The Times: Chemistry

April 30, 2008

The rising price of oil should not bring tax relief

Seeing petrol prices rise on the electronic boards outside filling stations is nothing compared to the shock when it comes to paying. A year ago the driver of an average-sized family saloon would have left the forecourt with a £60 bill for a full tank of petrol. The same driver will now be nursing a £70 hole in the pocket. Diesel users have had it even worse. Today they will be lucky to leave the pumps with change out of £80. The price of diesel has risen by a quarter in the past 12 months and by nearly half since 2003.

Most drivers appreciate that the global price of oil is chiefly to blame. Barrels of the black stuff changed hands for $120 earlier this week, and the price may continue to rise. Problems at Grangemouth are causing disruption but will be temporary unless the industrial action deteriorates into a long-lasting all-out strike. It is global changes, not unrest on the Firth of Forth, that are forcing the price of oil to record levels.

Growth in China and India may be slowing a little, but emerging economies have become enormous consumers of energy, and look set to soak up plenty more. Prices are rising as production from some of the world’s biggest fields in the US and Russia declines. Even Saudi Arabia, the desert kingdom that sits on 25 per cent of the world’s known hydrocarbon reserves, can no longer be relied on to turn on the taps, even if it wanted to. Oil is also becoming progressively harder to find and more expensive to refine. The cost, environmentally at least, of using tar sands lying beneath some of the world’s greatest natural wildernesses is too high.

The falling value of the dollar on the foreign exchanges is not helping consumers. Meanwhile, speculators, having sucked the quick bucks out of global financial markets, are concentrating fire on commodities, and oil is getting more than its fair share of the attention. Times are good for the big oil companies such as BP and Royal Dutch Shell, which reported eye-popping profit yesterday. And the price of oil could surge to $200 if Chakib Khelil, Algerian Minister for Oil and the president of Opec, the oil producers’ cartel, is to be believed. If it does, drivers in this country will have to find £100 before lifting the pump from its holster.

Big users of petrol and diesel will be tempted to blame the Government. They will argue that tax relief is deserved, and affordable, since 68p of every 110p litre of petrol goes to the Exchequer. Since the Treasury is a clear beneficiary of rising oil prices it may be argued that the Government should give all the help it can to citizens already struggling with food, heating and mortgage bills. Harder heads may suggest that fuel duties should be cut because UK economic growth is threatened. At present fuel duties account for about 4.5 per cent of the Exchequer’s revenue. For all these reasons it may be politically expedient to cap that revenue. But it would not be wise, and not only because the extra duty on fuel will help the Government to plug the gaps that are appearing in the public finances.

More efficient use of fuel can reduce costs. Higher oil prices create incentives for drivers, and others, to use low-carbon fuels. Oil supplies are growing gradually but inevitably shorter. The ecological arguments in favour of finding alternatives are growing ever stronger. If we are to move to a post-petrol age, as we must, the people responsible for pollution must learn to appreciate the cost of carbon, and the cost of carbon pollution. High pump prices may be the only way.

http://www.timesonline.co.uk/tol/comment/leading_article/article3842524.ece

Headline by John Donovan of www.royaldutchshellplc.com

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