$100 oil and peak food?

PHOTO: Crushed oil barrel

Would you pay $600 to tell your friends and family a rousing commodities exchange story?

The BBC is reporting that the person responsible for pushing oil over $100 a barrel lost $600 in the transaction. Apparently, it was solely a bid to say they were the first to buy oil at the $100 mark. They immediately sold the oil for the $600 loss, bringing oil back to less than $100 a barrel. That fun nugget of info aside, oil is still expensive, and it only looks like it will get more so.

The Economist notes that even an economic recession might not bring the price of oil down. Mainly because growth areas like the Gulf states and China “make matters worse by artificially inflating demand for petrol through subsidies or price caps, which leave consumers with little incentive to drive less even as the oil price surges.” Kudos to the people who bought hybrids.

Count me as one of the uninformed who thought that oil prices would stabilize and slowly fall in the wake of the NIE that made a U.S. war on Iran improbable. (To be fair to myself, local gas prices were cooperating with that theory.) The Economist reports that the instability in Nigeria and Pakistan is to blame for the recent hike. I think all of this makes the argument for spending massive amounts (wisely of course) on R&D for renewable energy absolutely essential. We can’t let our economy be held ransom by unrest in Nigeria and Pakistan. And it’ll make Al Gore smile.

Is oil our biggest worry though? Donald Coxe, global portfolio strategist at BMO Financial Group, thinks a global shortage of food is the next disaster on the horizon.

“The greatest challenge to the world is not US$100 oil; it’s getting enough food so that the new middle class can eat the way our middle class does, and that means we’ve got to expand food output dramatically,” Coxe said. Food prices are already increasing, corn is up 44% while wheat is up 95%.

The solution from Coxe:

Mr. Coxe said crop yields around the world need to increase to something close to what is achieved in the state of Illinois, which produces over 200 corn bushes an acre compared with an average 30 bushes an acre in the rest of the world.

“That will be done with more fertilizer, with genetically modified seeds, and with advanced machinery and technology,” he said.

I don’t want to go overboard, but these problems are giant, and they will likely need giant solutions. I don’t think the market is going to help those poor countries that have to import their own food. So be prepared to see a lot more people starve if nothing is done.

Flickr photo by amuk2006

14 Comments

  1. Ian

    Pat Robertson predicted oil would go to $150 a barrel this year, so yeah, watch out.

    Al Gore is a jerk.

    As for food prices: Haven’t you heard Jim Gaffigan’s joke, “Salad for 6 dollars, or 5 hamburgers for a buck? Hmmm… sorry salad.” I’m not a vegetarian, and I know this is one of their talking points, but how much grain and land is used to raise livestock? I don’t think we would have a food shortage ever, but we maybe would be forced to turn some pastures into soybean farms.

  2. Chris

    Yeah… I don’t think we would have a food shortage either. The Financial Post says as much, referencing our tremendous output of corn. The real problem areas will be countries that don’t make enough food to feed themselves. Russia has already started barring exports of some of their foods because it is needed at home. How long before we stop exporting corn and wheat?

  3. Ian

    The worst part of stopping exporting would be from an economic standpoint on our end. We could, and probably should, be educating starving nations about more efficient agriculture. Not to mention we could help supply farm equipment to them. You know that whole business about teaching a man to fish…

  4. Cameron

    Didn’t Brazil just find one of the largest untapped oil reserves EVER? They’re already energy self-sufficient, so I imagine it’ll all be exported. And they’re a heck of a lot more stable than Venezuela or Iran.

  5. Chris

    Yeah,
    but we should be looking for energy that won’t run out, and doesn’t pollute nearly as much. Finding more oil is just a short term fix, and it still leaves us vulnerable to outsiders.

  6. NoodlesTM

    Oil is a long term fix. It will continue to be the most cost effective means of powering transportation for the next 20 years at least.

  7. Chris

    The price of oil has increased what, 500% since 2000? What if it increases another 500% by 2020? And 20 years doesn’t seem long term to me.

  8. NoodlesTM

    If it goes up another 500% by 2020 then perhaps other means of powering transportation will become economic. But here in the year 2008, even at $100/bbl, oil remains the most economic fuel for transportation and will continue to for a number of years.

  9. Ian

    This is one area I truly am qualified to talk about. First: Sorry, but 20 years is not a “long term fix”. 200 years isn’t even really.
    Second: Oil is currently the most economic choice compared to other sources of energy right now because of huge government subsidies. The government sees oil as being crucial to the health of our economy, and thus cuts oil companies a large break. This isn’t necessarily a bad thing. The bad thing is that they generally don’t provide equal subsidies for alternative energy.
    Third: Oil is used for much more than just transportation. We generally think of oil in relation to gas prices. Fossil fuels like oil and coal are our primary source of electricity. Derivatives from oil are used all over the place like plastics and cosmetics. We’re not just talking about how you are going to get to work. A ton of things are going to get more expensive. This is a threat to our current standard of living.
    Fourth: Alternative energy is viable right now and becomes more so every day. GE has made huge amounts of money from wind generators. The solar industry is growing exponentially right now. The idea of alternative energy isn’t to have every one driving solar cars. It isn’t to eliminate fossil fuels either. I don’t know anyone in the solar industry who thinks that solar will be the one source of power. The idea is to be smart about where you use different types of energy. You could greatly reduce oil consumption by using some solar power during peak sun hours. You could stretch the oil we have by a long time and reduce our dependency on it.

    You can’t just dismiss alternative energy anymore. The old adage of oil being the cheapest and best like you say is dying.

  10. Chris

    Great comment Ian.

  11. great article . makes you think about how crazy things are going to get!

  12. Chris

    Hey Linda,
    With some luck and some smart selfless people, we should be able to avoid armageddon 🙂 However, we are just starting to realize some of the problems that are going to arise as other areas of the world catch up to how good we have it in the “West.”

  13. James Gardner

    One can say fairly easily that the price of commodities will continue to rise as supply and demand shifts. I offset the price of these commodities through futures. I currently use cqg and x trader and I love it. It is very effective and I am seeing great success. Check it out. Thanks, James.

  14. Ian

    Gosh you’re swell, James.