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Oil Price Crumbles

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By Ed Crooks
December 4, 2015

Late on Thursday afternoon, after a gathering that took longer than expected and left the markets on tenterhooks, the Opec meeting in Vienna came up with its decision: ministers agreed to do nothing at all, leaving production at current levels.

Before they gathered on Friday the FT team in Vienna wrote on the fundamental conflict inside the oil-exporting countries’ group: Saudi Arabia is prepared to cut output to help stabilise prices, but only if other producers, both inside and outside Opec, are prepared to do the same.

Explaining the reasons behind the plunge in crude prices last year, and the reasons why Opec meetings are now so fraught, Martin Wolf, the FT’s chief economics commentator, looked at the implications of the US shale boom. The FT warned in an editorial that, as remote as the prospect might seem today, an oil shock could still hurt the world economy. By cutting investment in oil production, low prices are choking back future supplies. The Lex column highlighted one example of that: the financial pressures on the US shale oil industry, which are intensifying. The column argues that seeing the signs of strain in the US, “Saudi may be feeling some vindication”.

Martin Wolf took the view that the real problem with oil was not that the world is running out of it, but that there is “far more than [we] can burn while having any hope of limiting the increase in global mean temperatures over the pre-industrial levels to 2°C”. The UN climate talks intended to set the world on a course to achieve that objective opened in Paris on Monday with great fanfare, including stirring words and a flurry of pledges from world leaders. The challenge of turning the rhetoric into a global agreement remains daunting, however, with a number of sticking points still being disputed in the negotiations. While wrestling with those problems, delegates have at least been able to enjoy a well-organised event with first-class food.

Some observers saw more hope of finding a solution to climate change in the initiative led by a group of billionaires including Bill Gates, Jeff Bezos, Jack Ma and Mukesh Ambani, which is intended to raise up to $20bn for research and development of new clean energy technologies. looking for commercially viable breakthroughs such as a “oil from sunlight”.

Fossil fuel companies, the leaders of the old energy economy, insisted they still had an important role to play in a world of tighter restrictions on carbon dioxide emissions, and stressed the value of natural gas in fighting local pollution as well as global warming.

India, which is on course to become the world’s largest coal importer and the world’s largest source of new demand for oil, took centre stage at Paris, Prime Minister Narendra Modi setting the agenda with his column in the FT calling on rich countries to take on more responsibility for tackling the threat of climate change.

Bjorn Lomborg of the Copenhagen Consensus Center argued that spending the money needed to deliver the greenhouse gas emissions reductions talked about in Paris, likely to be over $1tn a year by 2030, would be “nothing short of immoral”.

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