Insights · February 3rd, 2011
Recent months brought a sense of security about future oil supplies and prices. Some large new oil discoveries, combined with improved production in Iraq and the Gulf states, had caused many observers to relax. Some even went so far as to claim that worries about oil were over, for the long-term future.
Egypt, Tunisia and the potential for more change to come, have caused investors to ask some questions about such relaxed views. While the U.S. Energy Information Agency had forecast that oil prices would peak at $93 this year, and remain mostly below that, just in the last couple of days prices on future oil have surged to over $100. The EIA announced there was an increasing chance of $110 oil this year, and some investors have publicly wondered about $250 oil. A lot would have to go wrong for oil to jump that high, but the near term looks pretty volatile.
Why does this matter, besides the prospect of a paying few more dollars at the pump. Two reasons. First, oil at $100 means that about 5% of global GDP must be devoted to buying oil. When we have reached that level historically there has been a negative impact on the economy. Global demand for oil is increasing as the economy revives, and prices much above $100 would create problems with recovery. Second, from my perspective on the more positive side, alternative energy investments, particularly in solar, will start to look better, and in fact this was the talk of the day on the financial chat shows.
In the long run, the great energy transition is underway. Recent events could speed it up a bit, but mostly they remind us all that relying on one form of fossil fuel, from relatively limited parts of the world, is a long term risk.
Glen Hiemstra is a futurist speaker, author, consultant, blogger, internet video host and Founder of Futurist.com. To arrange for a speech contact Futurist.com.