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Eighteen months ago when the guys at Goldman Sachs were forecasting that the price of oil would go to $100, it was widely dismissed as nothing more than the bank talking its book. Today, with oil hitting $110, the markets have changed their tune. Now the idea of oil at $150 or even $200 is not sneered at. It is seen as possible.
Barclays Capital's Tim Bond did some work a few weeks ago that underlines the point dramatically. The reason all commodities have soared in price - metals as well as oil and food - is a result of the industrialisation and growth of China, India and the rest of Asia, which is bringing literally billions more people into the world economy as consumers.
Bond extrapolated what would happen if China and India increased their consumption of oil to the per capita levels seen in the United States - which could happen within 25 years.
Assuming the rest of the world used no more oil at all, the arrival of China and India would double world daily demand. If the rest of the world also continued to grow, we would need almost three times as much every day as we currently produce. Pumping oil at that rate would reduce all known reserves of oil in 26 years.
Of course, people have been calling peak oil for years - and for years they have been wrong because somehow the supply has kept growing. This gives succour to the optimists, who say it will never happen because we will discover ever more of the black stuff. The reason there is a shortage at the moment, they insist, is that the oil majors cut back on investment a few years ago when prices were rock bottom. With high prices, they will reinvest and supply will soar.
They also believe the current price is not a fair reflection of supply and demand, and that the $100 has been artificially pumped up by financial speculation, perhaps by as much as $20. That hot money will rush for the exit the moment prices look about to turn, they say.
The price of oil, and indeed the price of gold which has just broken through $1000 an ounce, has been flattered by the weakness of the dollar and this has greatly exaggerated the trend, it is claimed. If converted into euros, the escalation of both prices has been much less spectacular,
However, that is not the way the world currently wants to bet. Perhaps the most active part of the investment scene - where demand has doubled in 12 months - are structured products linked to the price of oil. Massive sums are being staked on the price continuing to rise. Several leading investment banks are coining it by catering to this demand.
The great unknown is whether a global economic slowdown will pull the rug from under the price. In 1980, at the height of the Iran hostages crisis, oil was as high as it had ever been, but 10 years later it was so low you could barely give it away. Indeed, Lord Browne then newly ensconced as head of BP, ruled that his company had to be profitable at a price of $14 a barrel if it were to have a future.
But perhaps this time it really will be different. That is the point made by BarCap's Bond. His recent work suggests there has been a structural shift in commodity markets, meaning that even if there were a global economic slowdown, prices would not fall back to anything like their old levels.
Previous booms have always turned to bust as the supply of the commodity is normally increased just about the time the economies turn down and demand falls away. Not this time, he says, for two reasons. First, the easy-to-reach deposits of most minerals, including oil, have been exploited, so new mines and wells tend to be less productive AGA Foodservice Group today changed its name to Aga Rangemaster in recognition of one of its bestselling lines and recorded a net profit of £27.6 million up just 0.4% as tougher market conditions bit.
The firm will return £140 million in cash to shareholders as a result of the sale of its commercial division last year as well as a final dividend of 7.65p.
CEO William McGrath said: "If anything we're more confident than we were at the end of last year and we're not accepting that 2008 can't be better than 2007."
for a given amount of effort and are significantly more costly to develop. Second, the sheer size of the new players on the block and the amount of industrialisation already achieved means that even if they slow down they will still have a voracious appetite - one that did not exist a decade ago.
When you look at the changes taking place in the world economy and the sheer size of the expansion, then link it to the often-forgotten fact that the world's resources are finite, it becomes difficult to see why prices would fall in the long term. The 2p-a-litre rise in fuel duty deferred until October by Chancellor Alistair Darling inWednesday's Budget may well soon be seen as the least of ourworries if we have to get used to the idea that $100 is the floor for oil prices, not the peak.
Yet at the same time it is hard to see how so much of Western business would cope. Modern economies have been built on movement, and movement has been based on cheap oil. If we really are looking towards $200, the required adjustments to the way we live and how we spend out money are going to be traumatic.
