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$150 a barrel oil inevitable?

May 10, 2013

That is the conclusion of the analysis in this months issue of TerraJoule.

From the conclusion:

The next repricing of oil should, however, trigger production from a number of deep, offshore regions in Africa, and in Brazil. However, the same pricing dynamics will apply: none of this supply will “lower” the price of oil just as the current round of new supply did not “lower” oil prices. Development costs will have simply climbed to a higher plateau. Oil’s ultimate fate, therefore, is to increasingly pass to the hands of those users who can derive maximum economic benefit from using a small amount of oil. In the hands of the global chemicals industry, or with a family in Asia driving a micro-car just 40 miles a week, oil will be set free to price in the $150$200 range as the cost of marginal supply aligns optimally with a new type of demand. Oil’s quiet period could last, at most, another 24 months. By the end of 2014, unless a very bad global recession is underway, the Non-OECD will then be using more than 50% of total supply. The global oil industry will be happy to serve those five billion people, at prices above $150 a barrel.

TerraJoule is available for download at $6.99 per issue.  For most EGP readers, it will be well worth your while to spend the 7 bucks and read the entire analysis.

When reading this analysis, remember that security of supply is not the same thing as stability of price.  If, as I do, you place a premium on security of supply, then you are not terribly troubled by the conclusion that we may need much higher prices if we are to open up all of the potential unconventional reserves.  Indeed, a massive price spike of the type envisioned in TerraJoule might have the doubly positive effect of (a) increasing unconventional resource development while at the same time pushing the US to a methanol economy (at least in the personal transportation sector).

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