David Strahan

Peak Oil all over again: you do have to wonder, has this bloke ever heard of the price elasticity of demand?

For three years the oil supply has been a zero sum game in which if one country consumes more, another has to consume less.

So? In the short term this has always been true: it takes somewhere between a decade and two to bring a new oil field on line so when existing fields are pumping to capacity this is always true.

On the other side of the equation, demand is also, in the short term, pretty much impervious to price. For it\’s built into the infrastructure of our societies and only changes on any large scale as we turnover the technological infrastucture of those societies.

If we restrict ourselves only to the short term then the Peak Oil enthusiasts have a point. However, as soon as we look to the longer term, the decades, the problem disappears. For production is indeed sensitive to price: and so is demand. For example, this little graph of the energy intensity per unit of GDP.

So, we\’ve got high prices now: maybe they\’re only a temporary blip, the confluence of those two short term insensitivities to price. Maybe they\’re not, maybe they are a real reflection of shortages in the future.

Doesn\’t actually matter: those prices will, in time, curtail demand and we\’ll continue, as we do now, to have enough oil for those willing to pay the price for it.

\’S what markets do, balance supply and demand.

 

2 thoughts on “David Strahan”

  1. For three years the oil supply has been a zero sum game in which if one country consumes more, another has to consume less.

    A lot of this is down to OPEC maintaining production quotas, which limits the supply and keeps the price up.

Leave a Reply

Your email address will not be published. Required fields are marked *