Wednesday 8 August 2012

The New Paradigm: Volatile Oil Markets | Energy Bulletin

One of the many hypotheses put forward by peak oil theorists is that as the production of conventional oil peaks we will see increasing volatility in oil markets. The basic reason for this is that oil is the fundamental energy resource on which our modern industrial society runs. Economies begin to falter under the pressure of high oil prices as they can no longer sustain growth and so demand for oil falls. As demand falls, so does the price of oil which eventually reaches a level that is conducive to economic growth. Demand increases again followed by the price of oil and the cycle repeats ad infinitum. That is of course until you throw a proverbial spanner in the works in the form of restrictions on the supply side. Historically the most influential spanner has been unrest in the Middle East. However we are increasingly seeing the impact of another much larger and altogether much more catastrophic spanner: the peak production of conventional oil.

Just look at how much more volatile prices have become over the last 30 years:
Figure 1: Monthly change in price for crude oil (US dollars per barrel), simple average of three spot prices; Dated Brent, West Texas Intermediate, and the Dubai Fateh, August 1982-June 2012. Data from http://www.indexmundi.com/commodities/?commodity=crude-oil


No comments:

Post a Comment