The Oil Accordion
Since at least 2005, the price of oil has been rolling up and down at least two or three times a year. Although summer seems to be a major period of rising prices for crude and winter sees the price for a barrel of oil falling to lower levels, other factors increasingly lead to uncertainty during other parts of the year. We are in an of energy turbulence and most of that turbulence is connected to oil.
In the comments section of The Oil Drum:Europe, Nate Hagens speaks of the "oil accordion." It's an apt image and here's what he says:
Someone suggested it be called the Oil Price Accordion but that's not entirely descriptive. As oil demand goes up, prices go up and make it possible to support expensive oil projects such as drilling in deep water, drilling in the arctic and drilling very deep. But as more oil comes online, the price begins to drop. Or the high price of oil—usually in addition to other problems—begins to have a dampening effect on the economy. This affects oil production which begins to drop. Oil projects cannot be turned on and off without serious costs being incurred (as hurricanes in the Gulf of Mexico have shown, oil can be turned off fairly quickly but starting the oil back up again is expensive and that has to be included in the cost of shutting down).
It's true that for twenty-five years, we assumed that occasional high oil prices didn't hurt the economy that much since the percentage of oil that affects the economy has dropped in that period. But the real cost of producing oil has been rising for some time. And the United States is finally paying additional economic costs for buying so much of its oil on the international market.
We're finding that market forces are not always efficient. It's disruptive when such things as oil prices or real estate prices dramatically rise or fall. The oil accordion is a descriptive name in this time of worldwide economic turbulence.
In the comments section of The Oil Drum:Europe, Nate Hagens speaks of the "oil accordion." It's an apt image and here's what he says:
The bigger issue is the oil accordion.
Now the economy can afford $100, yet oil companies require $60.
In the future the economy will be able to afford $90 and oil companies will require $70.
Then, $85 vs $80 etc.
Someone suggested it be called the Oil Price Accordion but that's not entirely descriptive. As oil demand goes up, prices go up and make it possible to support expensive oil projects such as drilling in deep water, drilling in the arctic and drilling very deep. But as more oil comes online, the price begins to drop. Or the high price of oil—usually in addition to other problems—begins to have a dampening effect on the economy. This affects oil production which begins to drop. Oil projects cannot be turned on and off without serious costs being incurred (as hurricanes in the Gulf of Mexico have shown, oil can be turned off fairly quickly but starting the oil back up again is expensive and that has to be included in the cost of shutting down).
It's true that for twenty-five years, we assumed that occasional high oil prices didn't hurt the economy that much since the percentage of oil that affects the economy has dropped in that period. But the real cost of producing oil has been rising for some time. And the United States is finally paying additional economic costs for buying so much of its oil on the international market.
We're finding that market forces are not always efficient. It's disruptive when such things as oil prices or real estate prices dramatically rise or fall. The oil accordion is a descriptive name in this time of worldwide economic turbulence.
Labels: oil depletion
posted by Poechewe at 6:20 PM
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