Demand for oil remains strong despite price increases
I was wrong.
Back in the summer of ’05, when oil prices were flirting with $60 per barrel, I predicted that oil would surpass $70 before it fell below $50. That is, I thought that oil prices would continue to rise in the short term.
I got that part right. Oil prices on the futures market briefly touched the $70-mark that fall, and reached the mid-$70s by the following spring.
But I also predicted that oil would fall to $40 per barrel before it reached $80 — on the theory that, over the course of several years, rising oil prices would put a crimp in demand, while goosing production a bit.
That part I got dead wrong.
(Mind you, this was a personal prediction, not a professional one. Oil prices are notoriously difficult to forecast. Even the futures market — which is a pretty good mechanism for aggregating informed guesses from people who have a real stake in getting the answer right — has done a lousy job of predicting prices in recent years. So as a professional researcher, I’d never stake a paycheck, or my organization’s reputation betting on oil prices. But as a private citizen and obsessive reader about peak oil theories, I thought that a short-term rise was pretty likely, but that prices would likely be a rollercoaster ride over the next few years.)
Today, despite my best guess, NYMEX crude oil prices closed within spitting distance of $80, and even exceeded $80 in intraday trading. Even adjusted for inflation, that’s pretty high. Notwithstanding some big dips, prices have continued to trend upwards.
No moral here, really. Just two observations.
First, crude oil demand has remained pretty strong, in spite of rising prices. That’s mostly a testament to how useful oil is. There’s really nothing like it — it’s energy dense, reasonably safe, easy to transport, and despite recent increases, incredibly cheap for what it can do. Any attempt to deal with climate change has got to recognize that it’s going to take external constraints — either dwindling supplies or political will — to keep us from filling up our tanks and driving over a climate cliff (to butcher a metaphor).
And second, be skeptical about people who make firm predictions about the price of oil. Nobody — not even the experts — really knows what prices are going to do. Which means that we’ll have to design climate policies to be effective, no matter what happens to the price of oil down the road.