The rise of oil production (and oil consumption) has coincided with the industrial revolution. Some go as far as attributing our rapid growth in the last century to easily accessible and cheap oil. Historically, expensive oil has tended to cause or coincide with recessions, and cheap oil has coincided with growth and prosperity. Not quite what one would expect if the oil price were determined mainly by demand variations. No doubt, oil has been and still is very important to the global economy.
Up until the seventies, oil production and consumption tended to increase at a rapid pace. Then came oil sheiks, the oil crises and increasing oil prices. The immediate effect was economic and political turmoil. The longer term effect was increased exploration efforts and energy savings. The oil consumption has gone up somewhat since the seventies, but the peek of oil consumption per capita is far behind us.
One of the results of the oil crises was feeling that oil might run out. Known oil reserves would only last for a few decades into the future. But time passed by and oil did not run out. In fact remaining oil reserves seemed to increase each year rather than deplete. Today the general consensus is that oil will not run out, at least not in the foreseeable future. Anyone who thinks differently is a crackpot or a doomsayer. History has taught us that we will find as much new oil each year as we pump from the ground. Yet, this will not go on forever. Oil is a limited, non-renewable resource. Every time we burn a barrel, there is one less barrel left. Eventually oil will run out, or at least become scarce enough and costly enough so that we won’t burn it all. Before oil runs out, there will be a peek in production. We have not passed that peek yet, but growth in production tends to be slowing.
A lot of facts tell us that we will soon see the peak in oil production. We know a lot more about geology and the forming of oil now than we did in the seventies. The easily accessible potential oil fields have been explored, and the most likely places have been drilled. It is becoming increasingly harder to find new oil. There is also indications that remaining oil reserves are not as large as are officially stated. One reason for exaggerating reserves is the OPEC rule that oil quota are determined based on the size of reserves.
A likely outcome of a future reduction in oil supply would be a rising price to the point where it would not be economical to use oil as energy anymore. Other outcomes are possible as well. One might think that it would be rational for the oil producing countries to restrict production in anticipation of a significantly higher oil price. There are, however, a number of reasons why they don’t.
As mentioned before, world oil consumption per capita has dropped from the peak value. This is mainly due to saving and alternative energy sources. In many countries there have been government efforts to reduce the dependency on oil. The high oil prices in the seventies acted as a catalyst to this process. Many OPEC countries, especially in the Middle East, with decades of oil production still in the ground are afraid that increasing oil prices will speed up this process. Also, a drastic rise in oil prices might throw the world into a recession, and many oil producers have major investments in the world stock markets. A more sinister explanation could also be contrived. Maybe the Middle Eastern oil producers anticipate a drop in world oil supply a few years from now. If oil is allowed to be cheap for a few more years, the rest of the world may not notice that oil supply is drying up. After several years, there would be no competition left, and the world would still be heavily dependent on oil.
There are other explanations as well. Many of the oil producing countries need money now. Either they are poor, in war or have gotten used to steady incomes from oil production. Especially for the democratic countries, there is usually no incentive for the politicians not to maximize oil incomes. These countries tend to call for higher prices and cuts in production and then produce as much oil as possible anyway.
Basically, the key to long term prediction of the oil market is to determine whether oil supply or oil demand will dry up first. A joker might be the environmental movement.
Recent Oil market News
- M&M Pushing Triple-Net Lease Sales Despite Low SupplyORLANDO- Marcus & Millichap are getting busy in the net lease sector. Marcus & Millichap Real Estate Investment Services recent sold the highest-priced Walgreens in the southeastern United states and inked two other recent deals in a mini-flurry of activity in this competitive arena.
- Hoyt building changes hands in 1031 exchangeDeveloper Brad Hoyt and his Continental Property Group were set to have a 245,000-square-foot commercial building in Plymouth transfer to a lender after defaulting on a multimillion-dollar mortgage. But the property is instead going to an undisclosed investor in a 1031 exchange, a tax sheltering mechanism.
- Daytona Beach Real Estate Investors Use Special Techniques to Build Rapid Wealth in Current Real Estate MarketFind out how to protect your assets and use a 1031 Exchange or Self Directed IRA to build wealth. [PR.com]
- Calkain Sets Up Triple Net Retail Shop in South FloridaFT. LAUDERDALE? Calkain Companies is heading south. The Washington, D.C. triple net lease specialist is opening an office in Fort Lauderdale to complement its office in Tampa.
- NES Financial to Exhibit Industry-Leading 1031 Exchange Solutions during TIPRO?s 66th Annual ConventionThe company?s industry-leading 1031 Exchange Solutions offers TIPRO attendees methods to free-up capitalSan Jose, CA (PRWEB) March 13, 2012 NES Financial, a leading provider of 1031 exchange services for the oil and gas industry, is scheduled to return to TIPRO?s 66th Annual Convention on March 27-28, 2012 in Dallas, Texas and exhibit its leading 1031 Exchange Solutions. …
- Opus Bank Appoints Phil Petrozzi Senior Vice President, Senior Managing Director of Fiduciary Banking DivisionOpus Bank (the ?Bank?) announced today that Phil Petrozzi has joined the Bank as Senior Vice President, Senior Managing Director – Fiduciary Banking Division, a new division within the Bank?s Commercial Business Banking division.
- Herb’s Market In Montauk Is Up For SaleAn eagle-eyed reader pointed out that “for the first time in 60 years” Herb’s Market in Montauk is up for sale. And what are they hoping to get for the business?
- Performance Contracts Drive Double-Digit Growth in the Energy Management Services Market, States Frost & SullivanMOUNTAIN VIEW, Calif., Mar. 6, 2012 /PRNewswire/ — The simultaneous occurrence of an economic crash, the widespread implementation of regulations for energy efficiency, and an increase in financial incentives …
- McCourt To Make At Least $400 Million Profit On Sale Of DodgersIn the end, Frank McCourt will get the last laugh. The embattled owner of Major League Baseball?s , ridiculed by his team?s supporters and forced to sell his trophy franchise by commissioner Bud Selig, is going to pocket more than $400 million when all is said and done. Here?s the math: Let?s say the Dodgers …
- Peak Finance Company and Gaspar Insurance Services Co-Sponsor Path 2 Buy WorkshopOn March 29, 2012, Kirk Jaffe, Executive Vice President , Originations for Peak Finance Company (http://www.peakfinanceco.com) and Tim Gaspar, owner/CEO of Gaspar Insurance Services (http://www.gasparinsurance.com) will conduct a workshop to help renters develop a plan for home ownership. …
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