$50 A Barrel Oil: Geo-Strategy as Petroleum Geology
austinbay.net
On March 2 I posted on the advent of fifty dollars a barrel (or more) oil. (The post was about $53 a barrel oil.)
That post’s lede went like this:
Last October, while chatting with two friends, I did my own back-of-the-envelope analysis of oil prices. Both of my friends wanted to know what the “bottom” price of a barrel of oil would be over the next four to five years. ..I suggested $33 to $35 a barrel was the bottom. Based on increasing Chinese and Indian demand it was reasonable to bet that oil would stay at or above $40. Another “qualitative factor": Saudi Arabia is cash-strapped. Forty bucks a barrel or better is what it needs to fuel its strange, feudal welfare state. Though the rumor mill says there’s a lot of big time oil exploration going on, Saudi Arabia remains the key “swing producer” and its economic and political needs have a lot to do with how it swings. There are two wild cards: the first is Russia and what it can produce– I have no guess as to Russia’s ultimate production potential. The second wild card is Iraq: if and when Iraq gets its oil act together it could pump a lot more than 2.3 million barrels a day.
Robert Samuelson has an interesting take on the rise in oil prices and why higher prices are likely to stay (Newsweek via MSNBC).
Here’s Samuelson’s argument:
The interesting question about the advent of $50-a-barrel oil is whether it signals a new era in the economics and politics of energy. To sharpen the question: have we entered a period when, owing to consistently strong demand and chronically scarce supplies, prices have moved permanently higher? We don’t know, but the answer could be “yes” for at least one reason: China.
Americans consume almost 21 million barrels of oil a day, a quarter of the world total of 84 million barrels a day, reports the International Energy Agency. But China is now second at 6.4 million barrels a day, and its demand could double by 2020, various analysts told a conference held last week by the Center for Strategic & International Studies (CSIS) in Washington. Moreover, China will import most of its new needs; its domestic output is steady at about 3.5 million barrels a day. It’s unclear how much China’s extra demand—and that of other developing countries, especially India—will stimulate extra oil production.
Oil markets do undergo seismic shifts. Until 1974, the United States was the world’s largest oil producer. Supplies were plentiful; Americans controlled their own oil prices, as Daniel Yergin explained in his 1991 book “The Prize.” With surplus production capacity, the Texas Railroad Commission—which, despite its name, regulated oil—limited output to stabilize prices while maintaining a “security reserve” for times of crisis, wrote Yergin. In March 1971, the commission allowed all-out production to meet rising demand. America’s oil surplus had vanished. Worldwide prices rose, and OPEC (the Organization of Petroleum Exporting Countries) became more powerful.
Here’s a good bet: Sustained fifty dollars a barrel oil will fuel more alternative energy research. |
