As oil prices near the previously unthinkable level of $100 a barrel, David Murphy, Business Correspondent, explains why fuel costs are going up and up and how it will affect Irish consumers
We are on the brink of breaking the psychologically important barrier of $100 for a barrel of oil.
At the beginning of the year few would have imagined that prices could have accelerated with such speed - in January the cost per barrel was only $62.
But 2007 has been an extraordinary year. In future we may look back at it as a turning point for how we use energy and how we think about it.
The ferocity of surge in prices has taken many people by surprise. In Ireland we have been cushioned from the worst of the effect by the dramatic slide in the value of the dollar.
International petroleum companies buy oil in the US currency, so despite the escalation in oil it has been offset by the decline in the dollar.
But in recent weeks the value of the euro against the US currency has stabilised while the price per barrel has continued to rise.
That means Irish consumers are going to feel the effects of higher fuel costs on the forecourts a lot more than before. Obviously, if the dollar strengthens prices will rise further.
So why is oil going up? There are more and more people living on the planet. They are using increasing amounts of oil, particularly as populous countries such as China and India develop economically.
Most of our energy comes from fossil fuel. It is a finite resource, so at some point we will begin to run out. When exactly this will happen and is a matter of debate exercising politicians, academics and business leaders.
Experts call the prospect of running out 'peak oil', where the rate of oil production enters terminal decline. It is a scary theory. If global consumption is not curbed before the peak, the availability of cheap conventional oil will drop and prices will rise, perhaps dramatically.
But in the short term rumours can push up prices in the market. We have seen concerns about political unrest in the Middle East, worries about the level of stocks and fears about escalating consumption pushing up the cost this year.
People sometimes jump to the conclusion that markets are always rational and calculating - they are not. The herd instinct is strong and a piece of information about something which may or may not happen can electrify prices in a heartbeat.
Breaking the $100 a barrel barrier will mean higher prices for petrol, diesel and home heating oil. Inflation will be affected and many businesses will pass costs on to consumers.
Troy Lavin, a Dublin-based independent oil trader, says: 'I think Asia will be badly affected. In India and China people can’t afford to pay market prices for petrol and diesel, their governments pay subsidies to reduce costs to consumers.'
He adds that as oil prices continue to escalate administrations in those countries will be more acutely affected.
In Ireland we are going to have to become accustomed to paying more for energy - or using less of it.
