17 January 2008

Oil Supplies Rise, Price Drops from $100 Ceiling

The most recent Oil Market Report from the IEA reports a rise in energy production for Dec 07. With a rise in inventories, world oil prices dropped from the ceiling of US $100 per barrel to current prices near US $90 per barrel.High oil prices tend to spur innovative thinking in alternative energy technologies, such as advanced solar energy, cellulosic alcohol, biotech creation of synthetic biofuels, and alternative fossil fuels such as oil shale and tar sands.

High oil prices are good for innovation toward more renewable energy technologies, in the long run. In the short run, we will see increasing use of coal in heating and power generation.

The increase in oil production for Dec 07 suggests that OPEC and other producers can crank up production when motivated to do so. In this case, higher oil prices were sufficient motivation--combined with an increasing use of oil by the oil producing countries themselves. Do not expect increased production to continue, if oil prices fall too low from high supplies.

But it is a dangerous game that OPEC countries play. If oil prices stay too high for too long, the dampening effect on the global economy will lead to recessions and reductions in demand. Reduction in demand alone will force prices lower. At that point, oil producers will have to produce more to maintain their spending--and at reduced prices to boot! For the oil producers, it is smarter to increase production to maintain a world oil price between US $70 per barrel and US $80 per barrel. At those prices, world demand will continue high.

Higher production will require increased investments in exploration and production technology, but they will have to bite that bullet sooner or later anyway.

Oil supplies are limited, but not nearly as limited as peak oil doomseekers and evangelists claim. The nations of the Earth have between 20 and 30 years to move to more sustainable energy technologies. Given that global cooling stands to be a greater danger than global warming, it is important to use the full palette of energies to effect this transition to greener, more sustainable energies by 2030.

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