The future fall in the price of oil

In the mid 1990s the price of oil fell to around $8 a barrel. Technology was changing. It was suddenly possible to get twice as much oil out of any given well as before using something called a silver bullet. The result was that oil companies had invested billions in finding new sources of oil, only to discover that their existing resources were going to last longer than expected. The need to find new resources - and the profit that could be derived from them - dried up. Oil prices needed to rise from this low, or oil companies would stop looking for new reserves altogether.

Of course, the result was that prices rose rather too much. And now we face an immediate shortage. Prices have hit $60 a barrel, and may even rise higher in the short term. But in the medium term, as the new resources start to come back on stream, the price will fall again. There is no shortage of oil - known supplies will last for centuries. There is a shortage of immediate capacity for exploiting the oil.

Within five years, prices will stabilise below $20 a barrel, and the talk of a $100 barrel will be seen as ridiculous.

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