> Markets are now forecasting oil prices will stay above $100 a barrel for multiple years
It'll never go below $100 a barrel.
It went bellow $100 a barrel for the last few years because as US shale processing came online, opec decided to also keep production high which cut oil prices from $100/barrel to ~$50/barrel where it's roughly stayed for the last decade.
There's not another "new way to extract oil for cheap" technique on the horizon. Israel and Iran are both destroying oil extraction and processing facilities in the gulf region, it'll take years and a huge amount of money just to rebuild those. By the time that's finished, assuming it finishes, inflation will have firmly caused the price of oil to stay above $100.
This is basically a permanent increase. We are sort of at global warming catastrophes now. It's not a question of if it will be bad, it's a question of how long and how intense. The longer this war/military operation/regime change/whatever we are doing goes forward, the worse it will be. And, unfortunately, I don't think there's any specific goal the trump admin is trying to achieve. This is such an obvious F-up and Trump will only pull out if he can somehow make a claim that it isn't.
> Israel and Iran are both destroying oil extraction and processing facilities in the gulf region
This isn't like Katrina where oil infrastructure was being temporarily evacuated, shut down, and taking some water and wind damage.
The oil infrastructure is being blown to smithereens. And not just pumps that are sucking oil out of a hole in the ground. Refineries. Big expensive factories that process oil. Stuff we don't even bother to build in progressive parts of the world because the combination of environmental regulations and concerns about climate change mean it's possible they'll never pay off their massive construction costs.
> Stuff we don't even bother to build in progressive parts of the world because the combination of environmental regulations and concerns about climate change mean it's possible they'll never pay off their massive construction costs.
Ignoring pollution and externalities for the sake of argument this is what is very interesting to me. It’s not clear that the capital markets if left to their own devices would even invest in rebuilding these to begin with due to concerns about being paid back.
The oil industry has went from growth based investments to capturing returns on current deployed infrastructure over the past decade or so. Only very limited and calculated capital is being deployed in this sector these days.
It will certainly be interesting to watch. I’m certain those countries will rebuild via government funds, but I’m wondering how profitable that will end up actually being given how expensive that’s become to build, the insane construct lead times these days, and the overall trend in oil demand. Natural gas is even more interesting since it’s firmly directly linked to renewable energy deployment. Gas usage goes up as we deploy more solar worldwide, at least in the short term.
Additionally, the geology of oilfields is complex. They are like huge sponges made of rock with oil in the gaps. Because the oil production techniques involve injecting fluid into the field to extract the oil, if the oilfield isn’t managed correctly, it’s possible for it to shut down and be difficult to restart production even if you could rebuild the infrastructure.
I also recall in passing that Venezuela has massive oil reserves, but they are in tar sands and are therefore only economic when the oil price is high[1]. And who tried to take effective control of Venezuela’s oil production? Oh…
The price of a commodity is the cost of marginal production. Saudi oil is cheap to produce but there isn't enough to supply the world. Before the war the marginal production was Canadian tar sands, which costs about $60 a barrel to produce.
There are massive reservoirs of expensive oil in Canada and Venezuela. If Canada and Venezuela limit output then the price will go above their cost of production. If not, it will settle at their costs. ($80).
Kind of moot since it will take well over a decade for their production to ramp high enough to satisfy current world demand.
The best for for lower prices in the shorter term is likely lower demand through renewable alternatives.
It'll never go below $100 a barrel.
It went bellow $100 a barrel for the last few years because as US shale processing came online, opec decided to also keep production high which cut oil prices from $100/barrel to ~$50/barrel where it's roughly stayed for the last decade.
There's not another "new way to extract oil for cheap" technique on the horizon. Israel and Iran are both destroying oil extraction and processing facilities in the gulf region, it'll take years and a huge amount of money just to rebuild those. By the time that's finished, assuming it finishes, inflation will have firmly caused the price of oil to stay above $100.
This is basically a permanent increase. We are sort of at global warming catastrophes now. It's not a question of if it will be bad, it's a question of how long and how intense. The longer this war/military operation/regime change/whatever we are doing goes forward, the worse it will be. And, unfortunately, I don't think there's any specific goal the trump admin is trying to achieve. This is such an obvious F-up and Trump will only pull out if he can somehow make a claim that it isn't.