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14 July 2008

What Will The Price Of Petrol Be?

I read with interest over the weekend that Future Fuels Forum, organised by CSIRO, has published a report stating that fuel prices (in Australia) could reach $8 per liter by 2018. When compared with Malaysians, Australians seem to be much more concerned about the price of their petrol. Why is that?

According to this article at the Sydney Morning Herald, the FFF report is based on the premise that (a) petrol production will peak; (b) petrol production will decline; and (c) demand for petrol will spiral upwards. All of this is based on the premise that we will reach Peak Oil in the next 5 years. Peak Oil is the point when we have reached the maximum production for petrol, and basically, there's no more petrol left to be pumped.

However, an article published by the Centre For Research on Globalization (Is There An Oil Shortage?, by I. Hossein-zadeh), denies that we have reached Peak Oil, and blames the soaring prices of oil on "the destabilizing wars and political turbulences in the Middle East."

Personally, I believe that the price of petrol will continue to escalate. I take the liberty of reproducing a table showing the prices of petrol (in the Malaysian market) since February 1998 to the present date. It shows that, the price of petrol has increased by a higher percentage with every increase.

Feb 19981.10
1 Oct 2000101.209.1
1 Nov 2001101.308.3
1 Mar 200351.353.8
1 May 200421.371.5
1 Oct 200451.423.6
1 Mar 200501.420.0
5 May 2005101.527.0
31 Jul 2005101.626.6
1 Mar 2006301.9218.5
5 Jun 2008782.7040.6

Acknowledgement: The table was adopted from the article, Deteriorating Consumer Confidence From Fuel and Tariff Hike by A. Dass, at pp. 16-17 of the July 2008 copy of Smart Investor (Malaysia Edition).

From this table, it becomes clear that the price of petrol has never gone down. In fact, the price of petrol has only increased; and the remarkable part is that in recent years, every increase has been greater than the last. Could this trend ever be reversed? It is certainly not logical to assume that it can ever be reversed.

Perhaps one of the reasons why petrol will continue to rise in price is the continual population boom and the neverending need of the young to plug into electrical appliances. In this respect, we may like to consider the theories of Thomas Malthus.