Wednesday, September 17, 2008

WSJ Calls Out Oil Supply Yo-Yo Effect

As mentioned here previously, oil price movement in the era of Peak Oil (or geopolitical Peak Oil) works like a yo-yo, or if you prefer a bit more drama, like the kind of slip knot that gets tighter the more one struggles to break free of it ... heading higher or lower.

So while rising prices reduce demand, they also increase the incentive for the creation of more supply, and raise the bar on which kinds of projects can be considered affordable. However, the converse is that as price falls, and improves the fortunes of individuals, companies, and even the mighty US balance of payments, falling prices reduce the incentives for new development, and make nonsense out of previously sensible projects. Meaning, lower supply in the future and ... here we go again !!! Neil King of the Journal gives a good summation today here.

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