While oil prices have slid in their ubiquitous post-QE manner in the last few days, they remain notably elevated amid growing tensions in Iran and central bank largesse spillovers. These short-term fluctuations, however, pale in significance to long-run implications of peak-oil and whether it exists or not. From cost implications to technological innovation and demand destruction and supply constraints, the feedback loops of oil prices over time provide vicious and irtuous cycles for the global economy as we know too well. This brief clip provides all the color we could need on the matter of fossil fuel dilemmas and the diverging opinions of Astenbeck's (ex-Phibro) Andy Hall and Goldman's Michele Della Vigna provide the depth.
Andy Hall's Conclusion: In summary, yes there are new oil resources to be developed but it will require high prices for it to happen and even then it is by no means certain that these resources can be developed fast enough to offset declining production from the existing supply base. More likely is that prices will need to rise periodically to curb demand growth emanating from the developing economies. In any event, we feel that longer dated oil prices which remain at a steep discount to spot prices remain a relatively safe investment with very significant upside and limited downside.
What impact high oil prices?
Goldman's Michele Della Vigna: Since the start of this oil price cycle in 2000, peak oil theories have become increasingly popular, due to lack of credible new sources of crude oil. Over the past five years, however, the industry has opened up two new credible sources of future supply: the ultra-deepwater and the “oil shales”. We believe that these new sources of oil will be comparable in scale to the opening up of the North Sea and Mexico in the 1970s and will lead to a meaningful reduction in oil prices, alongside a change in the balance of power of the oil and gas industry. This is why we call it a revolution. However, the technical complexity of these developments and the tightness of the oil services supply chain are likely to delay the impact of these new projects by several years, sustaining a tight oil market.
The 'new' cost-curve...