Saturday, 31 January 2015

Understanding oil demand, oil prices and climate

It is amazingly difficult to get people to understand that if humanity acts seriously to reduce CO2 emissions, the price of oil would fall to very low levels - and stay there. In this op-ed in the Globe and Mail in December 2014, I explain the competitive drivers of oil prices, and why these prices have been really low for most of the past 100 years, even though human self-deception has most people thinking otherwise. In future op-eds and blogs I will present our research of the last two years on the path and level of the price of oil.

Oil Prices: A Lesson in Markets

Mark Jaccard
Globe and Mail, December 1, 2014

For 27 years in my graduate energy seminar, I’ve struggled to convince bright master’s and PhD students that oil prices might actually result from competition rather than a price-fixing conspiracy of oil companies and the Organization of Petroleum Exporting Countries cartel. But this year, my task was easier.

We start by reviewing several commodity prices – potash, lumber, copper, oil – which show that the oil market is not atypical. We see that all oil producers receive the same price, which is usually at or above the production costs of the most expensive suppliers, such as Alberta’s oil sands and North Dakota’s shale and tight oil. Low-cost producers, like Saudi Arabia, get more profit from each barrel.