Which simply means that prices WILL have to go up much higher to force the inevitable changes on us.
Continuing with lessons from Economics 101: 1) the oil industry will find new sources of supply, (already happening); 2) other investors will see the inevitability long term of higher oil prices, and invest in alternative fuels, (already happening); 3) unforseen scientific breakthroughs that cause paradigm shifts can often happen when a need is so clearly seen (thus the saying that "necessity is the mother of invention")--it's happened many times before; and 4) consumers of a good or service that is increasing in price will change their behavior, note just one example of which there are hundreds more over the world. In other words, they will use less oil, use it in a different way, and this will partially offset the increasing demands for oil from growing economies.
(I've commented before on the uniqueness of energy and global oil due to the political dimensions--tendency of world dictators to own the oil, and won't go through that again here).
It is useful to identify and discuss obvious trends, and there are a number around energy. Oil prices are going up over time is one. Another is that more nuclear reactors will be built because it is a proven source of energy, and thus the price of Uranium will go up, at least over the course of the next 10 years (and last 5).
But what are the impacts of these trends, and when will they occur? Clearly the forecasted $100/barrel on 12/31/05, didn't occur. It looks unlikely that for the second year running the$100/barrel will not occur on 12/31/06. Actually in both years not even be close.
Countdown to $100 oil (27) - 'Mission Accomplished' - High oil prices are here to stay
Before I take off to my much needed holidays, let me chart once more why many anlysts don't see oil prices go down in the foreseeable future - and why I personally believe they'll go up significantly. And of course, go read ManfromMiddletown's diary on the same topic, with an excellent summary of how the Mexican election might have a major impact on oil prices: Jerome may get his $100 barrel... from Mexico
And of course, go read ManfromMiddletown's diary on the same topic, with an excellent summary of how the Mexican election might have a major impact on oil prices: Jerome may get his $100 barrel... from Mexico
Is it enough to comment on the obvious that oil prices over time will go up? Or does this countdown to $100 oil lose credibility due to forecasts being repeatedly so far off?
1) the oil industry will find new sources of supply, (already happening);
No it isn't happening. Or not in the necessary volumes anyway.
2) other investors will see the inevitability long term of higher oil prices, and invest in alternative fuels, (already happening);
What do you have in mind? Biofuels? They are creating more problems than they are solving and are just riding a big fat wave of subsidies.
3) unforseen scientific breakthroughs that cause paradigm shifts can often happen when a need is so clearly seen (thus the saying that "necessity is the mother of invention")--it's happened many times before;
True, but you cannot reliably rely on that
and 4) consumers of a good or service that is increasing in price will change their behavior, note just one example of which there are hundreds more over the world.
And yet demand is still growing in the USA, and barely stabilising in Europe... In the long run, we're all dead. John Maynard Keynes
2) other investors will see the inevitability long term of higher oil prices, and invest in alternative fuels, (already happening); What do you have in mind? Biofuels? They are creating more problems than they are solving and are just riding a big fat wave of subsidies.
BTW, total world bio-power (measured by net primary production through photosynthesis) is only 75 TW -- less than 6 times what people now consume. Biofuel advocates, beware.
but really it's the combination of the four above that will solve this over time.
But perhaps the most exciting thing about oil in the $55 to $65 range is that it opens up a whole slew of investment alternatives - from tar sands to wind power to fuel cell cars - that weren't feasible when fossil fuels were cheap.
Which is abundant in its elemental form and can readily be dug out of the ground. Oh, no, wait... it can't.
Our best source of new energy is to cut consumption via technology. there is essentially nothing but stubborness preventing the USA from getting fleet mileage up to 40 MPG from current 20ish. Doing that alone knocks about 5 MMBD gasoline demand out.
tar sands Similar issues. See the link in my diary.
diesel fuel-hybridµ Now that's a real solution. But that's on the demand side, not the supply side. *biofuels Not sustainable, and not physically doable on a large scale. Again, it will be a niche for the smart money following subsidies, but it will create knowck on effects in other ag. commodity markets very quickly. In the long run, we're all dead. John Maynard Keynes
*biofuels
Just like Europeans will liquefy russian gas to replace diesel... Something to watch: I once read that modern variants of FT process, require huge amounts of cobalt for catalysts, and already-planned gas liquefaction facilities around the world would account for 5% of cobalt production for about 10 years. So if it ramps up, we should see another commodity under pressure. Pierre
The point with the Countdown is that any unexpected event can trigger big price increases, and have indeed in previous occasions, in the context of an upwards trend (see graph above).
None of the crises predicted for this year have taken place yet, so the brutal spike that would accompany them is yet to be seen, but the upwards trend is still with us.
So you may find the whole exercise silly, but we'll see. In the long run, we're all dead. John Maynard Keynes
The bad news (or good, depending on your point of view) is it looks as though today's prices are here to stay, possibly through much of next year.
But don't expect $100 a barrel But that doesn't mean prices are going to spike again soon. The biggest reason not is that stockpiles are near record levels and fall is what experts call the "shoulder months" - the time between strong summer demand from driving and air conditioning and winter's heating needs. Basically, there's not much to move the market. Come 2007, investments that have been made in production, thanks to the recent high prices, could start to come online and boost supply.
The biggest reason not is that stockpiles are near record levels and fall is what experts call the "shoulder months" - the time between strong summer demand from driving and air conditioning and winter's heating needs. Basically, there's not much to move the market.
Come 2007, investments that have been made in production, thanks to the recent high prices, could start to come online and boost supply.
or 15 minutes after an al Qaeda attack on Ras Tanura.
whichever comes first.
