Will oil hit $100 a barrel any time soon? It could, but it really depends on whether the US opts to bomb America, and on other influential global military players whose decisions will turn out to be key.

Bruce Whitfield:
We know the world is going through something of an energy crisis at the moment. Alternatives are being sought urgently but is it happening urgently enough? Certainly a report today from the German based Energy Watch Group implies that we are in serious trouble.

The group saying that global oil production peaked in 2006 and could fall by seven percent a year and by 2030 they are saying it would have fallen by half. That is alarming stuff but is it just a little bit of lunacy perhaps? Tony Twine is senior economist at Econometrix and is it alarmist claptrap or is there something in that warning Tony good evening?

Tony Twine:
Hi Bruce good evening and I think one just has to be very careful looking at reports about scenarios that people have drawn because the report is inevitably summarised and leave out half the story of what the scenario planners were thinking about. Also just one little trap in your introduction is that if you drop at seven percent a year you halve in 10 years so watch the numbers.

Look we are more dependent on oil than we were when we first started worrying about oil 35 years ago during the first oil crisis and it is not just as fuel as an energy source. Oil produces many of the things that you and I can see and touch around us and the listeners as well and everything from plastics to paint to solvents to the powder that your shirt was washed in. We are extremely dependent on oil that dependency probably means that there will always or for a very long time be more and more money thrown at what is a wasting resource but it also means that more and more resources can be exploited.

Bruce Whitfield:
Because we know it is a finite resource there is only so much fossil fuel available on our planet. The one factor driving the price is that demand is very close to supply but I have got the impression that Opec has got more capacity than it makes available to us and that buoys the oil price. Is there any way of measuring just how much oil is under the ground?

Tony Twine:
You know the story about ask three economists and you will get 15 opinions. Ask half a dozen oil geologists and you can have any number you ever thought of and probably get them all in one reply. The oil reserves are rated in terms of probability of being able to exploit at particular prices.

So for mere mortals like you and me to actually look at a global oil reserve report and make head or tail of it is really asking people to do something. So oil has a probability of being exploited and it has a probability at a given price of being exploited. So perhaps if oil got to $300 a barrel we would never run out. Perhaps if oil sank to $25 a barrel next week we would run out very smartly.

Bruce Whitfield:
Again it is the whole fundamentals of supply and demand. I mean the key drivers of the oil market as you see it at the moment very close to $90 a barrel last week we have come off a little bit of that but it is fairly scary as a consumer to be looking at this oil price.

Tony Twine:
It is. You must remember where we are today at around about $83 a barrel for Brent we are much less than 10 percent higher than we were in August 2006. So whilst these numbers beginning with eights and nines might look very scary we must remember that they are not wildly out of kilter in terms of where oil was even just over a year ago.

Bruce Whitfield:
And again talking about the alarmist hypotheses but here we have got some economists and some of the investment banks saying ‘oil price a $100 a barrel in sight’ and I guess that is possible but is it likely?

Tony Twine:
Precisely and I am not in a heck of a much better position to say whether it is than you are or any of the listeners are. Yes it certainly is in sight whether or not it comes closer towards us or turns around and recedes as a probability is anybody's guess and I guess the people with the best guess are sitting in the Pentagon and the White House at the moment and wondering whether to bomb Iran or not.

I think that the crisis in the price such as we know it at the moment due to Gulf tensions is being influenced and driven not just by the Gulf states themselves but also by other very large and influential military players around the world. So a $100 it is entirely possible is it likely I don't know and to be absolutely honest financial institutions often use scenarios and investigates scenarios and even begin to trade on scenarios just in case even though they themselves might reckon that there is a very low probability of any particular scenario ever working out.

Bruce Whitfield:
And that almost becomes a self-fulfilling prophecy at some point though doesn't it Tony?

Tony Twine:
It can do especially in today's very highly developed derivatives markets where derivative prices sooner or later can actually come and begin to affect spots and contract prices.

Bruce Whitfield:
Tony Twine thanks very much indeed, senior economist at Econometrix.