14 ms·
This is speculation on my part, but I would think that the threat to the oil producers is not that they may run out of the stuff in 100 years...rather, it's tha
by zdean 11y ago
This is speculation on my part, but I would think that the threat to the oil producers is not that they may run out of the stuff in 100 years...rather, it's that oil may become obsolete before then (because alternative energy). At $30/barrel, it puts tremendous pressure on electric cars, solar, wind, etc. At $100+/barrel, they were creating a major incentive for the alternatives to thrive.
I'd like to hear about this from anyone more qualified than me (which would really be anyone).
- msandford 11y agoI think we're going to see prices cycle like this for at least a few more swings. If there were no speculators in the oil markets you might see slightly more stable prices but there's a tremendous amount of speculation which adds to the price swings, which make the underlying activities more severe. It takes anywhere from a couple of months to a couple of years to go from "acquired mineral rights" to "pumping oil out of the ground" which you can then sell. It also costs a lot of money. On the order of multiple tens of thousands per day on land and multiple hundreds of thousands per day at sea. So when prices are up people are expanding and drilling and going gangbusters. When prices are down people are trying to figure out how to cut costs and ride it out. During high prices there tends to be "over" investment and during low prices, "under" investment, both relative to the average investment over say a 5-10 year period. Maybe by a lot. As you mentioned one of the dynamics is that during low price periods alternative energy is a fool's errand and during high price periods it's genius. During average prices it'll slowly make more and more sense as the average price continues to slowly rise. But it's far better in some ways to instead of making the average price on an average day to some times make a lot and some times make a little by letting the price vary wildly. Price instability makes alternative energy investing chaotic and unappealing to big institutional investors who might plow substantial money in. Better to wait until the chop settles down and it looks good over a 10+ year timeframe. So if you get to make the average price on average and destabilize your competitors by letting the price wander all over, what's the downside? As long as you have the money to ride out the low price periods, none! I don't know when this interesting ride will come to an end, but supply/price management is going to continue to be very important to people with a lot of oil left in the ground.
- baltcode 11y agoShouldn't intelligent speculators drive down the price swings? If there are going to be price swings, shouldn't speculators make money by issuing futures and options, thereby decreasing the eventual swings?
- msandford 11y agoThe big oil companies do a fair amount of this I'm sure, but do you really want to bet a few billion as to exactly how much oil will cost in 2-6 years? The US consumes 20 million barrels a day, so at current prices that's $600 million a day at $30/bbl and $2 billion a day at $100/bbl. How much do you think you'd have to buy or sell in the futures market to move the price to smooth it out? Finally, it's very, very hard to know what's short term volatility and what's long term structural. Everyone "knew" that oil prices were going to be high forever because of peak oil and declining production. Turns out, maybe not.
- dzhiurgis 11y agoAlternatively, now that Tesla demonstrated that electric cars are better in most ways, $30/barrel makes them cheaper to produce.
- ant6n 11y agoFunny thing is, solar is down sharply along with oil.