$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