A very important question these days is ‘how long is oil
going to be $65 a barrel?’ The world
has already changed because of the current price of oil.
First, every businessperson and economist has noticed that a
doubling of oil price in the 1970s led to inflation that ranged from 10% to 12%
and finally reached 18% in one year. Oil has now tripled in price and there is virtually no inflation.
We can only guess at the reason. My guess is that the availability of Chinese goods on the
international market has kept inflation at near zero. India, Mexico and East Europe have also contributed to our
current good fortune. Overall we have
to give international commerce and the WTO credit for the current miracle.
Second, everyone in the energy business is trying to figure
out the causes of the present $65 a barrel oil price. The longer the price stays high the quicker the oil monopoly will
end. At a long-term level of $28 a
barrel of oil, virtually every alternative form of fuel becomes a bargain. Oil from shale is already flowing into the
market. Wind, solar, methane and
ethanol can all make a profit at $28 a barrel.
The longer oil stays high the more confident energy investors will be in making the high capital investments in alternatives.