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"Demand destruction" is nonsense. There will always be demand for hydrocarbons. Oil and its distillates remain the only viable means of fueling most motor veh

"Demand destruction" is nonsense. There will always be demand for hydrocarbons. Oil and its distillates remain the only viable means of fueling most motor vehicles, Tesla's hype machine notwithstanding. Even if you could somehow find the trillions of dollars needed to electrify every railway in the world and the tens of trillions more to build enough lithium batteries to replace every auto on the world's roads with an electric one (assuming you didn't use that lithium for grid-tied residential storage instead), you would still have shipping, industrial processes, home heating, forklifts, barbecues, remote residential, mining, and forestry applications, trucking, job site, datacenter, and medical generators, legacy power plants, and countless other sources of demand for petroleum products. Plus some that probably don't even exist yet (many of which may well be carbon-neutral, unlike fuel applications). The notion that $150 oil's modest pinching of SUV drivers' wallets will magically make all of the above go away is lunacy. This is great for all the shale and other high-cost producers, at least for those with patient investors. The Saudis are setting things up so that the folks with shale will be the last people with accessible oil. The sooner the shale producers shut down, the more oil they'll have available to sell later at prices vastly higher than any ever seen. Meanwhile, the Saudis will have pumped their fields dry at rock bottom prices, minimizing their total return. Economically speaking, this is the biggest gift to the US and Canada that the Saudis could possibly make. All that's left is for investors in shale to sit tight, or failing that to sell out to wiser ones at fire-sale prices. Keep careful watch on who buys up the leases from bankrupt shale producers over the next year or two; if they have the right attitude they will be worth a dozen fortunes a few decades down the road. Thanks, Naimi!

Spooky23 12y ago
The diplomatic bond between the U.S. and Saudi Arabia is really something to ponder. Both nations are making bad deals to support a seemingly incoherent political policy. Should be interesting reading in a few decades.
crdoconnor 12y ago
>Tesla's hype machine notwithstanding. The Nissan Leaf demonstrates the real future of electric vehicles, not Tesla. >The notion that $150 oil's modest pinching of SUV drivers' wallets will magically make all of the above go away is lunacy. Running your car on electricity is already way cheaper than gasoline and has been for some time. The only thing needed to get most people to switch is a slightly cheaper and hardier battery. A more expensive electric car is often still cheaper in the long run. The Saudis can see this, which is why they're worried, and that is the main reason why oil is so cheap right now and will remain so, possibly indefinitely.
crpatino 12y ago
Demand destruction does not mean what you think it means. It does not mean that people will magically stop wanting cars because petrol is expensive. Rather, it means that because petrol is expensive, 95% of the market will suck it up and pay whatever prices is at the pump, but the poorer and most vulnerable 5% will face a financial crisis (on the personal dimension) because they simply cannot do so. So, they end up loosing their cars, their jobs and a bunch of other side effects. It's all simple microeconomics, allocation of a scarce good goes to the higher bidders. In the short term this mechanism makes prices to self correct. If they rise so much that people cannot afford petrol and there's petrol to be sold, the price will have to go down and find another point of equilibrium. The problem is that markets are rarely linear processes, and there are inherent delays between causes and effects. So signals take a non negligible time to move through the markets, and in practice this causes instability. And if the delays takes long enough, a business or industry can and do erode its own customer base.

Spooky23 12y ago

The diplomatic bond between the U.S. and Saudi Arabia is really something to ponder. Both nations are making bad deals to support a seemingly incoherent political policy. Should be interesting reading in a few decades.

crdoconnor 12y ago

>Tesla's hype machine notwithstanding. The Nissan Leaf demonstrates the real future of electric vehicles, not Tesla. >The notion that $150 oil's modest pinching of SUV drivers' wallets will magically make all of the above go away is lunacy. Running your car on electricity is already way cheaper than gasoline and has been for some time. The only thing needed to get most people to switch is a slightly cheaper and hardier battery. A more expensive electric car is often still cheaper in the long run. The Saudis can see this, which is why they're worried, and that is the main reason why oil is so cheap right now and will remain so, possibly indefinitely.

crpatino 12y ago

Demand destruction does not mean what you think it means. It does not mean that people will magically stop wanting cars because petrol is expensive. Rather, it means that because petrol is expensive, 95% of the market will suck it up and pay whatever prices is at the pump, but the poorer and most vulnerable 5% will face a financial crisis (on the personal dimension) because they simply cannot do so. So, they end up loosing their cars, their jobs and a bunch of other side effects. It's all simple microeconomics, allocation of a scarce good goes to the higher bidders. In the short term this mechanism makes prices to self correct. If they rise so much that people cannot afford petrol and there's petrol to be sold, the price will have to go down and find another point of equilibrium. The problem is that markets are rarely linear processes, and there are inherent delays between causes and effects. So signals take a non negligible time to move through the markets, and in practice this causes instability. And if the delays takes long enough, a business or industry can and do erode its own customer base.