Oil economics

You can be excused for not knowing much about oil, its production, distribution, and economics. As it happens, those who profess to know have blundered mightily in their predictions. And with oil, if you guess wrong, you lose big time.

At the moment, the falling price of oil is wreaking havoc with economies across the globe. One would have thought that cheap oil would have the opposite effect, reducing the cost of transportation, especially. Americans did rush out to buy more gas-guzzling trucks rather than more efficient cars. That’s what we do. But with the exception of vehicle sales, other economic factors have headed steadily south.

While I am as ignorant as the next guy about such things, I feel a bit better informed after reading this Quartz piece. The headline speaks volumes: “US bet big on American oil and now the whole global economy is paying the price.” Steve Levine writes:

In February 2015, Saudi energy minister Ali Naimi pondered aloudwhether petro-states might suffer a black swan event, with oil demand drying up entirely by 2050. And then what would the Saudis do? It seemed like an off-the-cuff philosophical contemplation.

But Verleger suggests that it wasn’t—that the larger message of the current bedlam is that we are watching the autumn of the oil industry.

“Producing countries understand that oil not produced today may never be produced,” Verleger told Quartz. “Saudi Arabia was the first nation to come to this understanding. In response, they and other countries have acted to make sure their low-cost oil is produced first while the high-cost oil in nations such as Venezuela and Canada are left permanently in the ground.”

The notion sounds slightly wacky—does Saudi Arabia seriously believe the oil age is coming to an end? Saudi Aramco chairman Khalid al-Falih did say recently that the country intends to maintain its strategy, and keep producing oil at maximum production.

 It wasn’t that long ago that the media were writing about “peak oil.” Now there’s a glut. Yet, oil may still be on the way out, as the above quote suggests. But it won’t be because we ran out of the stuff. Rather, we will have simply lost interest in it.