So how will $100 oil impact your decision making today. Doubt it will although if you read the paper, you’d imagine the world is about to end. It makes me wonder how high oil process will need to go before people make the radical shifts in their lifestyle that is needed to lessen the blow of this type of economic event.
The price of oil is an interesting things and one can argue that the price can only go up from here. If you think of the basic macroeconomic forces that are at work here: There is a very limited supply and it is getting more limited by the day. There is very high demand and it is growing by the day. Therefore even by simple terms the price of oil must go up. The only way for it to go down is to impact one of those two metrics.
To increase oil supply you have to expend a significant amount of money. You need to explore to new places and then you have to drill for it. Then you have to refine it, then you have to ship it to places where people actually need it.
To decrease demand on oil you need to invest a significant amount of money. You need to find alternatives to the combustion engine that is run on gasoline. You need to mass produce it and you need to convince people to buy it.
Neither one is an easy option. If you add into the picture that world is becoming a warmer place due to fossil fuels being burned and releasing carbon dioxide, then the strongest argument goes to the creation of alternative fuels and removel of dependence on oil.
When you leave the macro principles and you get to more socio economic theory, high oil costs impacts the lower classes much more than the upper classes. Further, the political issues that are created when the world economic forces move away from supporting oil producing economies is significant.
So going back to the main question, how will you change the way you live today due to the price of oil? The answer is probably not much. Real change will occur when we all make the small decisions in our daily lives that can help drive the larger macro economic decision making.
I don’t see much happening over the course of the next few years that will lead the price of oil to fall. The BRIC (Brazil, Russia, India, China) are continuing to grow their economies through use of oil. The supply continues to fall. So maybe this is a no-brainer.
Adding fuel to the fire (excuse the play on words here) is the role that speculation plays in the market place. The price of oil is set on the NYMEX and is subject to enormous amounts of speculation by traders. Many of the people that buy and sell contracts for oil have nothing to do with the oil industry at all. They are just people that see it as an investing opportunity and a way to make money. So there is some aspect of the price of oil that has very little to do with supply and demand at all and has purely to do with speculation. During the last decade, the price of oil rose ten-fold from $10 to $100. Clearly much of this rise has been fuelled by natural rises in demand and natural restrictions on supply. How much of the price increase going forward can be allocated to natural forces or speculation is obviously unknown. Clearly, this is a market that is ripe for profit making as all the forces seem to point in one single direction.
The price of oil is an interesting things and one can argue that the price can only go up from here. If you think of the basic macroeconomic forces that are at work here: There is a very limited supply and it is getting more limited by the day. There is very high demand and it is growing by the day. Therefore even by simple terms the price of oil must go up. The only way for it to go down is to impact one of those two metrics.
To increase oil supply you have to expend a significant amount of money. You need to explore to new places and then you have to drill for it. Then you have to refine it, then you have to ship it to places where people actually need it.
To decrease demand on oil you need to invest a significant amount of money. You need to find alternatives to the combustion engine that is run on gasoline. You need to mass produce it and you need to convince people to buy it.
Neither one is an easy option. If you add into the picture that world is becoming a warmer place due to fossil fuels being burned and releasing carbon dioxide, then the strongest argument goes to the creation of alternative fuels and removel of dependence on oil.
When you leave the macro principles and you get to more socio economic theory, high oil costs impacts the lower classes much more than the upper classes. Further, the political issues that are created when the world economic forces move away from supporting oil producing economies is significant.
So going back to the main question, how will you change the way you live today due to the price of oil? The answer is probably not much. Real change will occur when we all make the small decisions in our daily lives that can help drive the larger macro economic decision making.
I don’t see much happening over the course of the next few years that will lead the price of oil to fall. The BRIC (Brazil, Russia, India, China) are continuing to grow their economies through use of oil. The supply continues to fall. So maybe this is a no-brainer.
Adding fuel to the fire (excuse the play on words here) is the role that speculation plays in the market place. The price of oil is set on the NYMEX and is subject to enormous amounts of speculation by traders. Many of the people that buy and sell contracts for oil have nothing to do with the oil industry at all. They are just people that see it as an investing opportunity and a way to make money. So there is some aspect of the price of oil that has very little to do with supply and demand at all and has purely to do with speculation. During the last decade, the price of oil rose ten-fold from $10 to $100. Clearly much of this rise has been fuelled by natural rises in demand and natural restrictions on supply. How much of the price increase going forward can be allocated to natural forces or speculation is obviously unknown. Clearly, this is a market that is ripe for profit making as all the forces seem to point in one single direction.
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