Fri Nov 18th, 2005 at 09:19:09 PM EST
(Updated, following polite suggestion by Jerome, who could have just deleted the diary.)
I'll probably get whumped for hijacking this title, but here's a current reading on the price of oil. Ironically, Jerome's first 100$ oil diary was in June.
At this point, just entering winter--when the risk is high because of the unpredictability of upcoming demand--oil futures are at the lowest since early summer.
"In London on Friday, the price of Brent North Sea crude for January delivery eased also by nine cents to 54.76 dollars per barrel."
Trend? Or just a brief dip before the real crisis hits?
ANSWER is below!
Ok, so this was not a well-planned diary. I was just sitting here lamenting about how when the price goes up there are lots of diaries about it, and when it goes down, the new "100$ oil" diary rate seems to fall. Let me fill in with my thoughts on the subject.
There is still a LOT of oil in the ground, and the price is controlled primarily by the big suppliers who are governments, mostly in the Middle East. If they decide that the price of oil should be $60 a barrel, they can keep it that way for a long time. Perhaps more than ten years. The basic cost of extraction is still only loosely related to the price.
As a result, predictions of what the price will be can't be based on fundamentals like supply, which is hard enough to gauge, since nobody really knows what's going on in the big oil fields, even not the governments. To make a prediction one would have to know the future thoughts of the officials that set the prices. If there is a price war, it could go down--and stay there for a decade. If they manage to set up another successful cartel, it could go up to $200 tomorrow.
And, further, during the remaining decade or two of relatively cheap oil, the technology that drives other energy sources will continue to improve. This will drive down the fundamental price of those alternatives, and they will soon be at par with oil. At that point the supply curve steepens and the price tends to stabilize.
If you're willing to broaden the definition a bit from "100$ oil" to "100$ oil-equivalent energy" then my estimate would be "never." There could be short-term spikes due to wars or poorly planned regulatory situations, but the long term price of energy will stay under 100$.
A point was made recently that oil is a very dense energy storage medium, which makes it the most practical way to make a car or airplane. This is true, although batteries are getting closer and will probably soon be practical for cars. As for airplanes, they can be replaced by trains, which are more efficient anyway for distances up to about 1000 km.
I suggested teleconferencing home to Mom at Christmas, and was completely serious as that's what I plan to do. Most airplane travel is to support businesses, and I can tell you from a lot of personal experience that most of that travel can be cancelled with zero impact on the businesses.
So, the bottom line is that there is no 100$ oil crisis. What we do have is a change in the technology that we will use to generate and store energy, and some related moderate changes in lifestyle. The sky is not falling.