Wednesday, October 22, 2008

It's Hard Being Right All The Time

As the global warming house of cards tumbles, it's time to revisit my views on oil.

Like the real estate bubble, which I was vigorously assuring people would pop (I mean honestly, anyone who can afford to pay $750,000 for a house is pulling down six-figures minimum, and not that many households are doing that), I've also stated that as soon as we start sinking money into alternative fuels, the price of oil will drop to the point where those fuels are not financially feasible.

According to this, oil is below $70 per barrel. The most feasible of the alternatives I've read about is shale oil. (Still oil, but in crunchy form.) According to this, shale costs more than $60 per barrel, though I've seen estimates that it can be brought in slightly cheaper.

Russia's slap-happy waking bear dreams aside, I would suggest that oil can't be kept higher than the price that encourages alternatives. I mean, obviously, if you have magic car-moving goo for $90 barrel then oil can't go higher than that, or people will buy MCMG.

But also, the higher the price of a barrel, the more the alternatives can cost, and therefore the greater the interest in providing those alternatives.

Simple, eh?

Oil producers are simply motivated: They want as much money as they can get for what they have for as long as possible. By reducing output, they raise the prices and extend the longevity of their supply. But people will simply use less, on the one hand, and look for alternatives on the other.

The oilmen know this and act accordingly.

Eventually, I'm sure, we'll get to that better form of fuel. But it'll probably be something we don't even see now, maybe taking advantage of physics we don't even understand yet, say, at the quark or sub-quark level.

That would be cool. In the mean time, enjoy your oil. How low will it go? Think it might go back to sub-$50? Sub-$20?

That, I cannot say. I do like to point out that the peak oil people assured us it could only go up from here, much like the global warming people.

I'm petty that way.

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