The Age of Cheap Oil and Natural Gas Is Just Beginning
. . . although we will need to wait out the desperate oil bulls who keep fluffing the price every time something happens near an oil field.
More below the fold.
"Oil price rises over the past 40 years have been truly spectacular. In constant money, the price of oil rose by almost 900% between 1970 and 2013. This can be compared with a 68% increase for a metals and minerals price index, comprising a commodity group that, like oil, is exhaustible. In our view, it is political rather than economic forces that have shaped the inadequate growth of upstream oil production capacity, the dominant factor behind the sustained upward price push."
Well, yeah, the authors cherry picked the data to get the spectacular results. The results are kind of boring if you go back to 1862. But 1970 was the modern low price, and 2013 was the modern high price, so boom!
The chart is much more interesting than the cherry picked data. Notice how back in 1862 the price spiked due to the Civil War, but it quickly dropped after, as supply caught up with demand. After that, the price of oil occasionally spikes or craters due to supply and demand issues, but these are quickly resolved. The price of oil again spikes after the Arab Embargo in 1973, and stays high due to Nixon, Ford, and Carter oil price controls on oil. Only progressive government could be stupid enough to enact policies designed to continue an oil price spike.
Notice how after Reagan broke the oil price controls the price of oil dropped dramatically. The Iraq invasion of Kuwait, and the Gulf war caused another small spike but this was quickly resolved. Notice how the price of oil again immediately dropped and attempted to stabilize in the $20-30 per bbl range.
The current oil price spike was triggered by the fraudulent China Ponzi economy. China spent the past 15 years of a fraudulent economic tear, building, and growing, and indebting itself by gargantuan leaps. If you are interested click the China Ponzi category to read all about it. The bloom is off that rose. China is settling in for what looks to be a hard landing, and possible an irreversible hard landing. The oil demand created by the China Ponzi is likely done, or nearly done. Likely the world will go back to it prior equilibrium, but with much enhanced supply.
Demand will also decline in many other places from Russia, to Japan, to Europe, and beyond. Some of these demand declines will simply be due to demographic aging, and decline. Countries populated by fewer, and older populations use less fuels, countries which are poorer use less fuels, and most of the countries above fit one or both of these categories. Further, disparate technologies are likely to push us towards lower fuel use, such as the self drive car. If we don't drive we won't care if the engine in huge, so smaller, less powerful, gas sipping cars are more likely. And if we don't have accidents, the need for heavier cars is much reduced. Both save fuel.
The shift to natural gas for home heating will reduce the need for home heating oil reducing the demand on diesel.
Self drive long and medium haul trucks will not need to be as massive, both because of reduced accident rates, and the fact that without driver the total truck, and weight can be less, reducing the need for heavy road bases, and increasing the fuel economy. The drivers pay is a significant portion of these vehicle's costs, and without that element, trucks driving at a steady 55 or 60 mph will return slightly longer transit times (in hours), but lower costs. The total transit times will commonly, however, be shorter, since the self drive truck is not required to sleep like a human driver.
Absent idiotic progressive government interference with the oil supply/economy, we should see the price of oil return to the past baseline of $20-30 per bbl, with occasional temporal price spikes due to supply or demand changes. Because government is the wild card in this, and government is the least competent human institution . . . the potential for problems remains.
I expect oil prices per bbl to return to $20-30 (maybe 35!) fairly soon. Don't expect super low gasoline prices here in America, however, those prices are inflated by our betters at the EPA, and the politician through environmentally damaging rules and legislation regarding fuel blends. This part is pure graft, and corruption.