Could Gas Prices Go South?
No new prehistoric zooplankton and algae are dying. That’s the best part of the peak oil argument. Oil prices currently hover around a $90 a barrel- and have shown a slight decline- because many people believe we’re getting to the bottom of this keg, while serving more customers than ever. That line of reasoning ignores the back room where there could very well be a stash that can keep this party going.
Oil doesn’t have to be $90 a barrel. That’s the short-term price, based on supply that’s more or less fixed for five years into the future. Looking at the long term is tougher, for both peak-oil Chicken Littles and the Hummer sales force. In other words, any price that goes up, can also come down.
If your two-year-old wants more fries, McDonalds will sell you more fries. They don’t have to find new fields in which to plant new potatoes, then harvest, chop and fry. If they did, and you asked for more, they’d ask what you’d pay. You and the other parents with kids screaming for more fries could bid the cost up to $100 bag.
According to the International Energy Agency, the world is pumping out about 85 million barrels of oil a day. The world wants about 86 million barrels. That inequality forces up the price. Traders literally bid on futures, pushing it skyward. But, the more a barrel is worth, the more oil suppliers want to supply. And, the more a barrel costs, the less consumers are inclined to buy. All of which can– and should– pull prices back down.
Ironically, given how fast oil can propel a Gallardo or a Gulfstream, the world of gooey, gunky oil goes slow. Once significantly motivated to reach for higher fruit, it can take years for energy companies to pick it. Oil from shale, tar sands, deep Gulf of Mexico waters or the Arctic is ready and waiting; it’s just not easily accessible. It takes time and money to gear up. None of the tough stuff was considered profitable for $15 or $20 a barrel. When oil gets above $30 they wake up the engineers. When it nears $100, all sorts of new production possibilities arise.
Unless you’re The Organization of the Petroleum Exporting Countries. OPEC can probably increase production tomorrow afternoon. They talk about it all the time, because while they’re making tons of money now, they don’t want their gravy train to, you know, end up like America's passenger trains.
In 1981, while oil traded at $39.50 a barrel (roughly equivalent to $100 today), Saudi oil minister Sheik Yamani warned, “If we force Western governments into finding alternative sources of energy, they will. This will take them no more than seven to ten years.” Yeah, and that’s before global warming had it’s own Oscar and hybrids were bred for Merlot.
High gas prices can also enhance– if not trigger– an economic downturn, which fuels decreases in demand for oil, again forcing a return to a more palatable equilibrium. “Prices may move substantially lower if the economy keeps worsening and OPEC continues to boost production,” Rick Mueller, Director of Oil Practice at Energy Security Analysis Inc., told Bloomberg News recently. “There could be a series of large inventory builds as demand slips. Prices could easily fall into the $70s if this occurs.”
The price could drop even lower. Ethanol flows now, with new development techniques on the horizon and subsidies on the books. Energy from natural gas, nuclear and conservation increases each quarter.
Not that we’ll ever see $10 barrels again. While supply CAN climb, the world’s demand for oil IS climbing. It goes up by around a million barrels per day, every year. The US is the biggest pig at the trough, but China and India slurp up more and more each year.
Jeroen van der Veer, Chief Executive of Royal Dutch Shell (the world’s second largest oil company), told his staff in late January that output of conventional oil and gas was close to peaking. He wrote: "After 2015 supplies of easy-to-access oil and gas will no longer keep up with demand."
British Petroleum (the world’s third largest oil company) Special Economic Advisor Peter Davies agrees in part. But Davies believes demand is going to reel in production. Reporting to Parliament in January: “BP has proven the world has oil reserves of 1.2 trillion barrels, enough to sustain current output for 40 years.” Davies thinks the globe can crank out 100 million barrels per day, covering demand and pressuring price.
Put another way, enough ancient plant matter died to get us to 2050. We’ll need more sustainable energy after that, regardless of whether or not you believe humans spit in the winds of climate change. Sure, oil consumption will eventually be extinct, but in the near future gas may stop taking such a big chop out of your paycheck.
More by Michael Martineck
Latest Car ReviewsRead more
Latest Product ReviewsRead more
- Grg I am not sure that this would hold up in snow country. It used to be that people in snow country would not be caught dead in a white car. Now that white cars have become popular in the north, I can't tell you how many times I have seen white cars driving in the snow without lights. Almost all cars are less visible in a snow storm, or for that matter, rain storm, without lights. White ones become nearly invisible.
- Douglas I have a 2018 BMW 740e PHEV, and love it. It has a modest electric only range compared to newer PHEV's (about 18 miles), but that gets me to the office and back each day. It has a small gas tank to make room for the battery, so only holds about 11 gallons. I easily go 600 or more miles per tank. I love it, and being able to take long road trips without having to plug in (it just operates like a regular Hybrid if you never plug it in). It charges in 75 minutes in my garage from a Level 2 charger I bought on Amazon for $350. Had an electrician add a dryer outlet beside the breaker box. It's the best of both worlds and I would definitely want a PHEV for my next car. 104,000 miles and ZERO problems with the powertrain components (so far).
- Panther Platform I had a 98 Lincoln Mark VIII so I have a soft spot for this. The Mark VIII styling was not appreciated by all.
- Grant P Farrell Oh no the dealership kept the car for hours on two occasions before giving me a loaner for two months while they supposedly replaced the ECU. I hate cords so I've only connected it wirelessly. Next I'm gonna try using the usb-c in the center console and leaving the phone plugged in in there, not as convenient but it might lower my blood pressure.
- Jeff Tiny electrical parts are ruining today's cars! What can they ...