Pumping it up

Holy fuck (Goes to download tomorrow’s bus timetable…) One of the questions that’s been raised in recent years is when will the world’s supply of oil run out? The answer to this is, or course, the world will never run out of oil. Well, not in the sense that 40 years from now there will be a glass case in a museum somewhere labeled ‘World’s last barrel of oil’, or even that the pump down the road will suddenly run dry. This isn’t because there is an infinite supply of oil. There isn’t, of course. Rather, we will never run out of oil because of the self-adjusting nature of the market. The oil price will continue to rise as expected. Once the price reaches a level where it will be cheaper to use substitutes like electric powered or hybrid cars to travel around, we will no longer be dependent on oil as much. As is the case with most new technology, as these new types of cars become more commonplace, prices will also become more affordable. I’m guessing that oil will have to rise a significant amount, say $3-4/litre at the pump, before we will start to see this happen. The whole process,as well as some new technology prospects, is pretty well explained here. The only problem I have with this article is that it sees the current high oil price as due to a decrease in the world supply. This is not true. Current production is as high as it has ever been, with many OPEC countries running at maximum capacity. Rather, the main cause of the high oil price is the surge in demand, mostly from China to fuel its incredible economic growth. While supply shocks are devastating, as we saw in the 1970s, a demand driven increase in the oil price like we’ve been seeing ain’t so tough. China, along with India and other rapidly growing developing nations are world’s largest producers of manufactured goods. ‘Made in China’ products are ever increasing in quality, and are relatively cheap too due to low labour costs. As these countries’ economies continue to expand along with increased trade liberalisation, we can expect to see even more cheap, good quality goods on our shelves. So in the long run, any shocks we experience at the petrol pump may, to a certain extent, be offset by cheaper goods elsewhere, thereby keeping inflation at manageable levels.

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