The Oil Story

Recently I ran across an interesting article on developments in the oil-producing world.  Provocatively headlined “The Collapse of the Old Oil Order,” it addresses the dissension within the Organization of Petroleum Exporting Countries (OPEC) and the economic forces that are affecting the price of oil and keeping it below $50 a barrel.

Much of the article addresses geopolitical forces — like Saudi Arabia’s very rocky relations with Iran and Russia, two other big petroleum producers, and changes within the Saudi regime itself to move the Kingdom’s economy away from near-total reliance on oil prices and its seemingly endless supply of crude — but the piece also gets into the basics of global supply and demand.  And those familiar elements from Economics 101 have changed in ways that the experts didn’t really predict, especially on the supply side.

With the discovery of massive supplies of shale oil and gas in the United States and the development of technology to extract it, for example, there’s lots of new supply in the marketplace, and no one is making the predictions that we’re going to run out of oil in the foreseeable future that we used to hear.  In addition, green initiatives and other forces have affected the demand for oil in developed countries, and the consumption of oil in developing countries hasn’t bridged the gap.  The result is an oversupply, with countries whose oil production costs are highest struggling to deal with the current economic reality.

Gas prices aren’t exactly cheap — in Columbus and nationally, they’ve actually increased recently — but they are far from their peak prices of $4.00 a gallon or more years ago.  And the days when mighty OPEC was unified and could singlehandedly send shock waves through the global economy seem to be behind us.  It’s a good example of how predicting the future based on the uninterrupted continuation of current trends can often be wrong.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s