Insights · December 8th, 2014
It was not that long ago, 2008, when oil hit $147 per barrel. At the time, the prospect of oil at $300 did not seem out of the question, though insightful observers quickly pointed out that global economic collapse would prevent oil ever becoming that expensive. And indeed the price of oil peaked there because the global economy did proceed to collapse, though not primarily because oil was that costly.
In the years since we have seen the fracking revolution, which has poured new oil into a world of continuing feeble demand. Economic growth has been decoupling from increased energy demand for some time. In 2014, the price of oil has been plummeting, from $92 to $68 as of December 5. Business writers wonder whether $40 is on the horizon, especially if Saudi Arabia continues to drive the price down as a way to get at the fracking industry, not to mention as a way to keep alternative energy at bay for a while longer. Today the national papers are full of headlines and stories asking whether cheap oil will result in a new economic boom, while contrary voices ask if the opposite could occur. That is, cheaper oil could so damage the economies of producing nations, and could make fracking less economical, to the point that a global recession is triggered. This seems a real possibility, though not likely.
My take is this. Yes, the price of oil will continue to fall, because the fracking industry must keep cycling to stay alive and thus will continue adding to supply despite low prices, because the Saudis likely do want to drive the price down for some time, because alternative energy is getting cheaper, and because demand for energy is decoupling from economic growth. T.Boone Pickens on the other hand expects a rebound in price in 2015, and I do tend to listen to what he says about such things.
