If the economy recovers, oil demand will soar. The price will rise. It is already over $100 a barrel.
The USA is dependent on non-OPEC suppliers. So is almost half the world.
To see whether the free market will respond, ask yourself: Has output increased since the decline in price to under $40 in 2008? Answer: no.
OPEC currently supplies the world with 43% of its oil. The rest is supplied by Non-OPEC producers. One of the most important distinctions between the two is that OPEC oil largely comes from state-run oil companies. Saudi Aramco in Saudi Arabia, PDVSA in Venezuela, and the National Oil Company of Iran, for example. Meanwhile, in Non-OPEC, production flows from countries mostly through private enterprise: United States, Canada, UK, for example. What has surprised the global oil market over the past 7 years is that this majority segment of world oil production has also remained trapped below a ceiling, despite the price revolution which took oil from under $40 to above $100 a barrel. Free markets are supposed to create more supply, when price rises. New supply has indeed come online in Non-OPEC over the past decade. However, geology has trumped investment. It is geology that determines flow rates.
Where is new oil output coming from? Russia. It is not in OPEC, but it is surely not Western.
The USA has abundant natural gas. But it will cost trillions of dollars to convert all of our filling stations to natural gas. It will take 20 years, minimum, if we start now. No oil company is starting. Call it 30 years.
Time. We are running out of time. The longer we wait, the higher the price of oil will go.Oil is supply-sensitive. When oil is in short supply in relation to demand, its price gets high, fast.
The price of oil is going to go very high.
Think: $10 a gallon gasoline. What would that do to Americans’ budgets?