What’s up with the oil price?

Henry Thompson

Believe it or not the world is not running out of crude oil any time soon.  Oil prices have ranged from $50 to $150 per barrel over the past few years due to glitches in the delivery system, refining constraints, increasing supply in the US, worldwide demand variation, and government policies.  Current annual consumption is about 25 billion barrels.  Proven reserves are 120 times that, implying 120 years of consumption even without new reserves and falling consumption as the price rises. 

Economic depletion implies proven reserves would be half depleted with the price tripling after a century, hardly the typical doomsday story.  Potential reserves, including fracking and deep sea drilling, are extending supply for many centuries.  OPEC has lost its ability to control the international market.  Over the decades, the rising price of oil will lead to improved technology and alternatives if markets are allowed to operate freely. 

Problems with the oil market are above ground.  Wasteful governments own most mineral rights.  Government policies restrict refinery construction.  Oil exploration is curtailed due to environmental regulations.  Investors in alternative energy lobby for subsidies and restrictions on oil production and consumption.