Leggett again

They warn of an oil crunch: an unexpected crash in global production such that supply can no longer meet demand, even if China and India throttle back.


This isn\’t possible.

There is only the balance of supply and demand \”at a price\”. Supply of oil cannot meet the demand for it at $5 a barrel. That\’s why oil is whatever it is today….$80 a barrel? Something like that.

If lots more people want to use more oil then the price will rise further. If supply is more constrained in the future then the price will rise. Supply and demand will always, when prices are allowed their play in a market system, balance. For prices adjust to make it so.

6 thoughts on “Leggett again”

  1. [Pendant] Oil is back down to about $70 per barrel [/Pendant]

    What the great unwashed also seem to miss in this argument is that the world is awash in natural gas. This is a happy state of affairs that looks likely to continue for some time. Based on this reality, much investment is going into infrastructure to get the gas to market.

    Thus if you look at any forecasts made by grown ups, you will see that the percentage of oil products being used a transport fuel goes up, whilst more abundant natural gas replaces heating oils.

    We saw what happened in 2008 when oil reached $140+. Demand fell.

    In the medium term, Iraq is going to produce a hell of a lot more oil. In fact one of the few things stopping the production of more crude, is worries over CO2.

  2. They should elaborate more. The fear is that supply will not be able to meet demand at a price that is consistent with current economic activity.

  3. Or, more accessibly, an oil crunch could make air, rail, and bus travel unprofitable/unaffordable.

    Hang on, who did you say were on this taskforce again, Tim?

  4. What the great unwashed also seem to miss in this argument is that the world is awash in natural gas.

    It’s awash with oil, too. The obstacles in the way of my mates and me getting at it are political, not technical or geological.

  5. What Kit said.

    In the 60s we were told the world only had 20 years of oil left, same again in the 70s, and the 80s, and the 90s and (unsurprisngly) that’s the number that we keep getting told today.

    What the so-called experts seem to miss (or ignore) is that the reserves are not physical reserves but economicly available ones. So as the oil price changes so does the profitability of each oil field. If the price fell to $10 a barrel we’d have little or no reserves ‘cos at that price no-one could afford to drill for it. If it goes up to $200 suddenly a lot more will be economically available.

    So there’ll be no oil production crunch…but an economic one maybe? Quite possibly, but we’re not going to run out of oil any time soon as long as we’re prepared to pay what it costs to get to it.

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