Yep, Oil Really Is Scarce

Moneybox
A blog about business and economics.
April 30 2013 4:51 PM

Natural Resource Scarcity Is a Real Thing

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Something I've noticed lately is a huge surge in commentary, generally from conservatives, lauding the boom in "unconventional" oil finds as completely debunking the fashionable "peak oil" concerns of the mid-aughts.

The boom in U.S. fossil fuel production is a pretty big deal that's created a passel of jobs and transformed some local economies, but look at those oil price charts above. The gap between the blue line (West Texas Intermediate oil) and the red line (Brent Crude oil) is a good sign of the market impact of growing North American production. The gap is noticeable. It's also noticeable that prices have stabilized somewhat below their pre-recession peak rather than continuing the upward trajectory of the aughts. That's a big impact there. But the level at which prices have stabilized is still way higher than it was 10 years ago. And it continues to be the case that the U.S. is mired in slow growth, the U.K. and Japan are having zero growth, and Western Europe is in depression conditions, all of which ways commodity prices down.

Long story short, we're in nothing like the peak oil nightmare that a naive forward projection of the 2003-08 hockey stick would have led you to expect. But we've hardly conquered oil scarcity either. New discoveries are having trouble keeping pace with rising car ownership in Asia and declining production from many established oil sources. Meanwhile, unconventional oil is coming onto the market in part because oil is scarce and expensive, which makes it profitable to extract hard-to-extract oil. That's better for the economy than if we didn't find any, but it also means we haven't returned to the 1990s oil bounty and most likely never will.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.