The Peak Oil Debate: Is the Crisis Permanent?
There are many signs that the current oil crisis is indeed permanent. Although dips in the business cycle may cool off oil prices for a time there are too many long term forces at work supporting high oil prices. The implications for government policies and investor strategy are serious. Pessimists argue that too many oil producing nations have passed peak production and diminishing returns have set in. Moreover, discovering very large new oil fields is getting harder, and besides, new fields are often more expensive to exploit and in environmentally sensitive areas. Optimists argue that technology has always won through in the past and will do so again. New fields and new alternative will be exploited easier and more cheaply than before. Prices and elasticities will 'solve' the crisis as suppliers scramble to supply and demanders trim their demand. Hence, oil prices will fall over the long term. But what of the short term - meaning 4 years - the outlook is bleak.
Keywords: Peak Oil, Sustainable Prices, Business Cycle, Technological Breakthroughs
Dr. David Leslie Western
Senior Lecturer, School of Economics and Finance, Curtin University