Jim's blog discovers that somebody else has being doing the math on oil. He says something like this:
Econobrowser has projected the growth of oil demand of China and concludes the this country will soon be consuming a lot more oil than is ever likely to come out of the ground. Therefore the price of oil will rise without limit.Well, that will not happen. Trade and other wars will be fought for the oil, and the West will win once more. Imperialism, that practical English invention of buying raw materials cheap and selling manufactures dear, will be re-invented under a different name. That may have been in the mind of U.S. oil executives who told Congress yesterday that prices should be between $35 and $90 a barrel. John Hofmeister, president of Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell Plc, pegged the proper range ``somewhere between $35 and $65 a barrel.''
1 comment:
Nothing ever rises "without limit". Linear thinking never works. When I studied economics, it was possible to solve all sorts of economic equations if you assume "ceteris paribus" - all other things remaining the same. The problem is that in real life, systems are dynamic and nothing remains the same, so nobody can accurately predict future prices. If your friend really knows the future price of oil, he can make a fortune in the futures market, but the truth is, his crystal ball is worthless.
As the price of oil rises, all sorts of alternatives become viable and this sets a cap on the price of oil - already the price of diesel fuel is approaching the price of vegetable oil (the original fuel used by Diesel, btw). Solar, wind, biofuel, etc., etc. all become viable. And many of these are based on renewable resources so they don't become more scarce as you use up existing supplies - there are new supplies every day or year.
The Saudis are overplaying their hand - it is in their interest to keep the world addicted to oil, their only exportable product besides jihad. Once a solar cell or a windmill is put in place, there is a permanent reduction in the demand for oil - even if the price drops again, that customer is not coming back.
On the demand side, as the price rises, people will consume less - they will eliminate unnecessary trips, they will replace their giant SUVs (yes, Americans really do ride around in these things - there is nothing funnier than seeing a 3 ton monster Chevrolet Suburban being driven by a 45 kilo woman) with more economical vehicles, they will insulate their houses more, etc. Just last week my trendy and impulsive friends arrived at my house in a new Prius hybrid - they had traded in their SUV. Never mind that they will never get their money back in fuel savings - the hybrid is the new yuppie status symbol around here.
During the 1980's, the efficiency of automobiles increased by something like 50% due to things like electronic fuel injection replacing carburetors. But the US fleet average did not budge because the market used the increase efficiency to "trade up" to bigger more powerful cars. All we need to do is go back to smaller vehicles and suddenly (well, not suddenly - it takes a few years to turn over the fleet) the demand for oil is substantially reduced.
Post a Comment