Editorial: entering a cheap oil era?

Photo: Urmas Nemvalts

It was only in the last decade that the theories said oil resources were low on the globe and still to shrink, meaning the crude prices were going to stay high. To the joy of such leaders whose economies relied on sales of the stuff. But from end of 2013 the barrel prices have been in a long decline to Brent today at under $37 and WTI down to $34. While not often talked about, natural gas price is also twice cheaper by now.

At the moment technology seems to have beaten the theory. A short while ago, as the talk was about a soon-to-be rise of oil prices into new heights, synthetic oil from oil shale and electrical/hybrid transportation felt for many as utopia. But by now these have turned into trends impossible to ignore. Also, technology has become more energy-efficient and that trend will also continue. The diminished demand, especially on Asian markets, and the uncertain outlook form a backdrop to the crude price drop. Knowing that in ten years time close to a tenth of cars may go by electricity, the rest needing much less fuel, and the shale oil future still hazy, those with storage capacity are wise to sell today and not keep it for tomorrow.  

Obviously, consumption volumes will go down. The issue is: what will be the crude price tomorrow? The latest news says US Congress voted to do away the oil export ban of 40 years. About to exit sanctions and entering global market next year, Iran must have its takers all filled up. And at the latest OPEC meeting they failed to agree about cutting production thus allowing the prices to rise; and even from OPEC the noises are that no problem if it stays longer at $30 or so per barrel. Saudi Arabia, for instance, cannot produce less than eight million barrels a day as otherwise the Saudis would miss the natural gas needed for domestic consumption. Near-term, all that will affect global prices. Sure, crude price can never drop all the way to zero, but experts say we are in for a cheap oil era where during a decade we may see barrels of $30 or $20 or even $10. Considering the production costs in the Middle-East, say, this may well be reality.

Cartoon: I'll fill up some extra so when the times come it costs nothing I can boast I've got the dear stuff.