The squeeze will go on - but there may be a silver lining

The day of £5 per gallon petrol beckons. Airlines unable to cope with unprecedented fuel costs are falling out of the sky at the rate of nearly one a week. Wholesale gas prices – which are linked to oil – have jumped by more than 50 per cent since January, leading energy companies to pass on the extra cost to their customers. The £1,200 annual household fuel bill is not far off.

Oil companies, meanwhile, are raking in record profits. It is easy to demonise them. After all, during the first three months of this year, BP made an astonishing $73m (£37m) a day. Shell did better still, pocketing a cool $86m per diem. They are truly shocking numbers.

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But if the president of Opec is to be believed, we haven't seen anything yet. Earlier this week Chakib Khelil predicted that the price of oil could eventually get to $200 per barrel. That means more pain for just about every sector of the economy, expect oil producers of course.

He blamed the unprecedented prices on speculators piling into oil as a way of offsetting the falling value of investments valued in dollars, which have seen their value dwindle at an alarming pace. Some say this accounts for as much as 30 per cent of the rise. Yet that is only part of the story. The real reason comes down to one country: Saudi Arabia. Opec's most influential member and producer of more than 10 per cent of the world supply has been protesting for months that there is plenty of oil around, that the price rise is due to greedy financial investors.

This is disingenuous. Twice in the past 18 months, Saudi Arabia actually slashed production when the oil price weakened. Far from being a bystander, Saudi Arabia set the runaway price run in motion. With oil companies and other nations running at capacity, Saudi Arabia is the only player with the ability to increase output; which it flatly refuses to do.

Then there is China and India. The economies of these two countries, representing more than a third of the global population, are growing at an alarming rate. In the era of American economic hegemony, a slowdown of the magnitude now taking hold at the world's largest oil consumer always meant the oil price would reduce in tandem, often drastically. China and India mean that is no longer the case – they are more than taking up the slack.

The oil companies benefit from all of this, but they are facing a difficult future. Every year, they spend more just to stay in place, going further off shore and into less hospitable climes in search of the next big find. Royal Dutch Shell will spend $27bn this year alone – the largest investment programme of any company in the world – in its effort to find more oil. Production is nonetheless expected to fall.

There is a possible silver lining. The last time the world was rocked by oil shocks, in the 1970s, governments around the world, led by America, enacted sweeping energy efficiency mandates. Fuel efficiency of cars improved drastically. Oil consumption fell. That was all thrown out the window when the oil price collapsed, paving the way for the profligate 80s and 90s when the Sports Utility Vehicle came to reign supreme. No one expects an oil price collapse this time around.

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