The volatile price of oil and gas

Henry Thompson


In spite of what you might hear, the world will not run out of crude oil and natural gas any time soon. The price of a barrel of oil has ranged from $40 to $150 recently due to changes in demand, problems in the delivery system, refining constraints, improved exploration and fracking technology, and erratic energy policy worldwide. Annual consumption is about 25 billion barrels worldwide. Proven reserves are enough for 120 years of consumption at the same level, even without new reserves, new technology, and the economizing that will occur as the price steadily rises.

Consider that reserves would only be half depleted with the price tripling after a century. Potential reserves extend supply for centuries. Over decades, the rising price of oil will lead to improved technology and as well as competitive alternatives.

Most of the ups and downs in the price of oil and gas are due to problems above ground. Governments own most of the mineral rights and are very inefficient in their management given the lack of profit motive and short term horizon of politicians. Environmental policies restrict exploration and refinery construction. Investors in alternative energy lobby for subsidies as well as taxes on oil. The unpredictable changes in the price of oil are mostly political and promise to continue.