One hundred dollar oil sends a shiver through the economy. One hundred ten dollar oil gets consumer reactions.  If oil prices stay climbing the consuming economic players will respond with demand destruction.  If one believes the hysteria in the press and the pundits, a rollout of $200 a barrel oil and gasoline over $5 is inevitable.

But not this time.  It’s real clear from just over two years ago consumers can destruct demand, contracting oil exporters economies in return from a price run up.  The push pull on prices isn’t over and won’t ever be over.  Price run-ups and price collapses are will always be peaked up and peaked down.

For the exporters the price down peaks are a serious matter.  Many are governments holding power without consent of the population or hold power tenuously by threat of force.  As we’re seeing in Libya today both government and the population can threaten and use force.  Starting in Tunisia, on to Egypt and now in Libya it’s becoming clear that even when oil prices seem to prop governments up quite well, satisfaction isn’t based in oil prices.

No matter who is in charge, when the dust of the fight is over, the winner is going to need the revenue from the oil.  If the tyrant wins money will be needed, if the population wins, money will be needed even more.  From the consumers point of view a population win is most likely better as the need for money will explode driving a production explosion which may well play a part in over all oil market production.  Democracies are not well known for husbanding resources until the democracy matures, and there don’t seem to any mature democracies in OPEC.

Meanwhile consumers have three economic weapons in the oil market.  Conservation is first, the quickest; simply choosing not to use energy, skipping doing something that uses energy has a large impact when most everyone is doing the same thing.  Second, efficiency gains gathered when disposing of a fuel hog and replacing it with something that does the same work for a fraction of the fuel, uses a different fuel or energy source takes longer but has a security effect for the consumer and helps the entire consumer side of the market over the long term.

The third thing, which from a hard economic look includes a hard humanitarian segment, is to aid the oil producing nations’ populations to make the change.  It not as if when popular control is gained that all the oil production will stay stopped – rather after the slow down or shutdown during transition, the oil will flow again, probably to flow even more.

There is one other move that free countries and non-OPEC countries can do. OPEC is still at less than half of world oil production; the rest can increase production in their portion of the market.  The tools are at hand, and the reserves are already well known.  The last decade has seen more North American onshore oil and gas production coming from past-producing deposits and newly developed technology applied to shale reservoirs.  There is now and could be lots more oil production market share gained.

If the governments can overpower the political specialized interests with compensating consumer interests, a flood of oil can come to market over a just a few years.  That might be quite hard to accomplish when the ideology of many western leaders seeks the same social ends as many tyrants do.  Larger, more encompassing governments whether popular by choice or operated by despots, walk the same roads.   Even though they don’t see themselves as brothers, they are a community with similar interests.  Trying to do many things for a population eventually comes to the same levers of power whether elected or arriving from the power of force. The view of rebellions from Wisconsin to Tripoli is a curious sight, indeed.

The past few years has shown, if the value of the dollar can stay solid, that oil below $50 can’t endure for long and that oil much above $100 won’t endure either.  That range is instructive, a price low point can double and that’s where most of the time, the price will be.  Outside that range – producers or consumers are going to respond.  At more than $75 a tremendous motive exists for alternatives to oil.

Where the problem is difficult is in the amount of time the price spends at the opposing peaks.  That prediction is the most interesting and the most difficult to get right.  Its also always the most expensive to affect.

Say you trade your main oil using energy using personal transporter three times in a decade.  If you decide to improve fuel economy 25% each time you trade, in 10 years you’ll be at 42% of the fuel used ten years before, a 58% reduction.  For Americans that would almost stop oil imports at current market conditions.

If the U.S. government got out of the way and U.S. oil production continued to increase as it has reversed the past two years by about 2.5%, in ten years oil production would be up nearly 30%, close to 10 million barrels a day.

No fear here, but there’s lots of concern about governments and what they do and don’t do.


3 Comments so far

  1. Musson on March 11, 2011 7:47 AM

    I am glad you added the disclaimer about what the governments might do. If the US government retains it’s restrictions on offshore drilling and shuts down Fracking we will have $5 a gallon gasoline. This is especially true if the Fed procedes with QE3.

  2. JimW on March 11, 2011 4:41 PM

    Very much doubt if they will keep raising pump prices.
    We use and want to buy more machines. will supply fuel machines once they get financed. The fuel from the machine costs us 50 cents / liter (about $2 a gallon) If BigOil keep upping the pump price someone with money will start building more GreenNH3 machines and there will be fewer fossil customers. Supply and demand, isnt it wonderful. Lower cost, zero emissions, thousands of new good paying green jobs..

  3. BFast on March 13, 2011 11:27 AM

    If Rossi’s machine is what it is billed to be, what will happen to the price of oil? It seems obvious to me that it will take 10 to 20 years to fully roll out the technology if it is developed at break-neck speed. I would guess that oil companies, and oil exporting nations would soon realize that their product is headed for obsolescence (only so much oil can be used as lubrication and plastic manufacture.) If I were them, I’d be trying to sell as much product as I can before the new technology sweeps it into obsolescence.

    My eye is squarely focused on the Rossi machine.

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