"America finally rescues banks and now petrol could fall to 74p a litre" was the front page headline of the Daily Express yesterday; the article goes on to suggest oil prices falling to $30. I don't read the Express (although it has an excellent crossword) but the headline caught my eye as it defies all logic.
Colin Cambell of ASPO has predicted, in his latest newsletter, peak oil production to occur this year at 84 million barrels of oil equivalent a day. The peak shown in his graphs is more of a table top mountain and oil production looks flat and stable for a few years. He also states that there are unknowns with biofuel production that will skew the peak and production from oil sands is only viable with prices over $100.
My previous predictions on oil prices were before the current world recession (damn, should have seen that coming). The recession has reduced demand for oil and helped the price to fall from its previous high. With demand and supply being very close and the elasticity of price being low the price of oil is swinging wildly.
The Express's claims that the bail out will reset the world oil prices is therefore bizarre. If the economy is righted by the bail out (which it won't be) and begins back on its continuous growth path, oil prices will rocket again as demand rises forcing us back into recession. Boom and bust at increasing frequency - and a great example of why continuous economic growth cannot happen on a finite planet.
If the economy stays in recession then oil prices will remain low for a few years as demand stay low, however the large reserve of oil sands will not be exploited until the price exceeds $100 and this could act as a balancer to keep the price at around $100. Biofuels are the other big unknown, if they are increased then there is more oil supply, prices will fall and people will starve reducing demand further. If oil consumption stays at around its current level for any more that a couple of years irreparable damage will be done to the climate. This is worsened by a switch to coal.
The only acceptable future is one of managed energy descent and renewables.