The $10,000 Question (price of oil)

Well, they are right in a way, (the NYT, that is), the Dems have been abundantly supplying snake oil for years.

I would like to see oil hold where it is now for a while, for personal reasons. I would be thrilled if my paycheck got above 1980 levels, corrected for inflation, especially since I have been working in the industry most of these past 25 years.

As for $10 fuel, at some point it gets pretty darned expensive to keep the drilling rigs running, too, with fuel consumption over 100 bbls per day...not counting make-up diesel for drilling mud.

I do not see prices dropping by 30% by Christmas, but maybe that is wishful thinking on my part.

At $60/bbl a lot of high cost oil reserves become profitable to produce, but to gain producable reserves that are 100 times or even 10 times larger than all oil produced to date you have to include oil sands and shale oil. Those oil sands and shale oil are costly to produce and require huge capital investments, and they generate a lot of byproducts that have to be disposed of somewhere. So of course nobody wants a tar sands facility anywhere near them and it's tough to get the environmental approval to build the plant. Meanwhile conventional reseves continue to deplete and are not being replaced fast enough because of environmental restrictions on offshore drilling in North America and lack of investment in some of the foreign producers. So as demand continues to increase with 4%+ economic growth in the world, the amount of excess production capacity is dwindling to near nothing.

My view is that oil prices will have to go much higher before the US Congress will open up more offshore areas for drilling. The crackpot democrats in Congress will have to get a ton of angry letters and lose a few elections before they're willing to allow more offshore oil drilling along the east and west coasts of the US. I would say prices are headed for $70-75 before production increases enough to bring prices back to the $50-55 area. If the Iranian nuclear weapons problem continues to escalate and ends in a military strike or an embargo by Iran, then we could see oil at $90-100 for a several months.

I understand what Julian Simon is saying, and in the very long run there will be no shortage of oil, but Mr. Simon is going to lose the bet on real oil prices rising well above the level of the 1990's during the next ten years. Oil is just not that cheap or easy to produce in large amounts, and unless some huge new discoveries are made very soon, the price is going to stay above $50 for a long time.

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