Oil Price Spike Coming! Oil Price Spike Coming!

Another group is warning that we are on a crash course towards oil shortages in the near future.

Today, it’s a report by Cambridge Energy Research Associates (via NYT), that said the drop in oil investment and production will cause a “powerful and long-lasting aftershock following the oil price collapse.”

When demand picks up again, there won’t be oil in place to support the expansion of the economy and we’ll probably see another spike in oil prices.

It’s just another alarm bell ringing on oil. The IEA warned in February that a lack of oil exploration would lead to a big spike in price once the economy gets going again. We said it again in March. Then Barclay’s using a technical trend analysis said oil would definitely hit $57 soon, and would probably go to $60. And, of course, T. Boone Pickens clangs the bell every opportunity he gets.

Earlier this week McKinsey released 150 page PDF detailing why oil would run right back to $150 unless we changed a few things. Mckinsey suggested that we implement government policies so we can reduce the demand for oil, as it will be more difficult to control supply than demand.

Some of their suggestions:

  • In light vehicles we can apply more stringent efficiency standards which would cut oil demand by 2 million barrels a day.
  • Increase building and industrial efficiency could save 6 million barrels a day.
  • Remove trade barriers to sugar-cane ethanol, could abate oil-demand. Along with that require all autos to be fuel-flexible so they can take advantage of biofuels.
  • Reverse the shift to diesel passenger vehicles will save .5 million barrels per day of diesel.
  • Substituting boiler fuels, could abate 8 million barrels a day.

We are sceptical of any plan that calls for an increased reliance on biofuels. Maybe the government should consider subsidising oil production? We’d like to see the public reaction to that idea. As of right now, crude oil for May delivery is at $53.33 a barrel on the NYMEX.

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