Oil has shot up in price over the last month. Will the trend continue?

Last night, oil measured by the Nymax futures reading passed $80. In fact, at the time of writing it stood at $81.21. Bearing in mind that oil was below $72 a month ago, then you can see that’s quite a hike.

Of course, it was much higher earlier in the year, moving within $3 of $90 in April; and in 2008 it homed in on $150. Even so, at current levels it hurts.

Measured in sterling, the price hasn’t really fluctuated much – £51.25 at the time of writing – largely because rises in oil have to an extent coincided with rises in sterling. If you are interested in such things, oil measured in sterling has fluctuated between £45 and £57 this year. When the dollar price of oil was down to $36 in February last year, the sterling price was around £25, and when oil was at $145 in July 2008, the sterling price was £73. So, oil measured in pounds has not varied anywhere near as much as when measured in dollars.

The Baltic Dry Index, which measures shipping costs for commodities, provides something of a guide.

This index fell sharply between the end of May to the middle of July, dropping from around 4,200 (a six-month peak) to 1,709, but has recovered slightly in recent days, rising to 1,977 at the time of writing. Since the beginning of 2008 this index has ranged from 11,700 in May 2008, falling below 700 in May last year. The recent drop in the index spooked some analysts, and certainly suggested oil was too expensive.

The oil market has been made unpredictable by the force of globalisation. In a different era, the nasty economic environment in the West would have led to a crash in the price of oil. The current price of oil, given where the West stands in the economic cycle, is much higher than one might expect. But globally, growth is impressive. China, India and the rest are pushing up global GDP, and as a result oil has stayed higher.

But the recent falls in China’s Purchasing Managers Index, suggesting the manufacturing sector in the economy behind the Great Wall could be teetering on the edge of recession, point towards a fall in demand for oil later in the year. See: China’s double whammy and The runes point down, but not by much

In the medium term, however, the prognosis for the price of oil is up. The BP oil spillage is surely a symptom of overstretched supply. BP itself had previously made soothing noises about how there was lots of oil out there, lurking in such places as Alberta’s tar sands. But the lesson of the BP oil spillage, aside from the fact that even the mightiest of companies can see their fortunes turn overnight, and that crowds are unpredictable, is that oil is getting harder and harder to reach. In the US there is a danger that the anti-BP bandwagon has blinded people to this underlying truth.

Over the next few months oil may well fall, but in the medium term the runes are pointing a long way up.

Where this column diverges from the cynics who think peak oil spells the end of economic growth, is that we would say that if we allow it, then progress in exploiting renewables, and advances from the likes of Craig Venter using genetic science to change algae so it can become a renewable substitute for oil, will lead to a crash in the price of the black stuff in the longer term.