Energy Market Reviews

    ...As we've noted in previous article¡¯s, Hubbert's "Peak Oil" theory appears to be valid. It is certainly supported by observation in that many cases can be cited where the production from an oil field or an entire oil-producing region has gone into decline exactly as predicted by this theory. However, we do not believe that geological limitations to oil supply constitute a major economic issue. There are vast untapped oil reserves in the world, and if the oil market were able to operate freely then these reserves would probably satisfy demand for generations to come. Furthermore, the free market would develop economically viable alternatives well before we reached the point where oil supply was limited by geology. In a nutshell, a sustained shortage of a commodity as useful as energy would never occur in a free market.


Which brings us to the root of the problem: the oil market is not free. This, and not any geological considerations, will potentially lead to troublesome constraints on oil supply in the future. In other words, if there is going to be an oil supply problem with grave economic consequences then the origin of the problem will be political, not geological.
The free market is very good at anticipating potential supply shortages and addressing the unanticipated shortages that periodically crop up, but governments around the world have their tentacles deeply immersed in the oil business, from oil exploration all the way through to the consumption of oil-based products. In particular, governments: a) heavily regulate oil exploration and production, b) control or influence the prices of oil and oil-based products, c) attempt to influence energy consumption trends, d) reduce, eliminate, or manipulate in some other way the economic incentives to expand supply, and e) use oil as a means of gaining geopolitical advantage.