Photo: foto.bulle via flickr
The IMF’s latest report on the global crude oil outlook is rather terrifying. Titled “The Future of Oil: Geology versus Technology,” the Fund attempted to find a way around the “geological” case, better known as “peak oil,” which argues that the world has hit critical scarcity on recoverable oil deposits.
They conclude that that scenario is likely not far off the mark.
Using a model that assigns values to the historical ability of supply and demand forecasts to accurately predict prices, the authors find that indeed, there are likely to be only slight increases in production:
“While our model is not as pessimistic as the pure geological view, which typically holds that binding resource constraints will lead world oil production onto an inexorable downward trend in the very near future, our prediction of small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade.”
There is one caveat: GDP changes cause prices to fluctuate most wildly.
However, the best-case scenario for lower prices is for GDP to remain stagnant.
This graph, the most important from the report, shows the various outcomes proscribed by the model:
The 90 per cent confidence interval shows prices could will hit a minimum of $120 by 2020, while the straight model forecasts $180.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.