Whilst it may be convenient to point the finger of blame at the sovereign debt crisis on our current and continuing economic woes, what appears to have been ignored is the effect of increasing commodity prices, particularly oil. As I write, the price of a barrel of Brent crude is just below $105 per barrel. High oil prices have a twofold effect on our economy. Firstly they act as a tax on consumers, reducing spending power, and secondly they increase inflation, which then reduces spending power further. Most commentators believe high oil prices are here to stay, given increasing demand from the developing world. But I wonder.
Remember only a few years ago, there was a consensus in the US that the country would soon be forced to rely on imported natural gas. Faced with this challenge a number of liquid natural gas terminals and facilities were built in order to handle these imports. Then, almost overnight, vast amounts of shale gas were found and produced, as a result of which the use gas price collapsed and, now, apparently 90% of these LNG facilities are lying idle.
Now in the US the techniques used to produce shale gas are being used to produce shale oil, leading to increasing US oil production in recent years. So could a shale oil revolution be on the horizon? If the answer is yes, the collapse in the oil price which result may well ride to the rescue of the world economy. An interesting thought to get us through these harsh economic times.