The Price Of Oil And The Environment In the Late Twenty-Teens

In my post yesterday on Looking Forward To The Late Twenty-Teens, I said I would not forecast the price of oil.  I shall not do so too precisely, but I think I will comment on likely effects of possible trajectories of it.  Indeed, I think the general trajectory is well known,with only bottoms, tops, and timing unknown.  In short, the price of oil will almost certainly decline some more, hit a bottom, and eventually go back up again, although with the unknowns I just mentioned.  For a highly informed analysis of the supply and demand factors I recommend the recent post on this by the highly knowledgeable Jim Hamilton at Econbrowser, who tells the scenario I just said, but also very carefully eschews making even short-term forecasts or anything about timing.

So, much of what I have to say should be boilerplate, although I have seen many denying parts of it.  The lower the price goes and the longer it stays there, the more this will help global economic growth over the next half decade, even though oil exporters will be hurt.  They are outnumbered by the oil importers, and such a scenario might even alter the prospects for the currently gloomy Euroland and Japan, both major oil importers, even temporarily overcoming their depressing demographics.

OTOH, this will hurt getting us off fossil fuels, which we need to do in the longer run to save the world from global warming. Ironically, however, in the short run, both China and the US economies are mildly aided by continuing warming, as has been projected by most models, with gains for about another degree or so of warming.  Why?  The gains from reducing winter heating costs will outweigh the losses from all the other welI known damages, which will eventually start outweighing those gains after that degree or so.  Of course there are many areas, particularly poor, low-lying nations, who will suffer nothing but damage from near term warming.

I see many saying that a lower price of oil will not slow the shift to alternatives, but, sorry, it will if it goes low and stays there.  Indeed, this is partly why the Saudis are letting it go  down.  They are at the bottom of the world supply curve, and they want to punish and eliminate various high cost competitors, some of whom they do not like (Russia, Iran), and some of whom they are friendlier with (US with all its new shale oil).  But they also  do not mind getting Americans out there buying those gas-hog SUVs again and just generally getting everybody back under their thumbs again.  And, if anybody thinks the Saudi royal family is about to get overthrown soon, well, not in the next five years I predict.  Sa'ud al-Faisal has been foreign minister since the mid-1970s, by far the longest seving such person in the world, and I predict he still will be in 2020.

That said, I do think that King Coal is dead in the US, once and for all, no matter what happens to the price of oil.  Natural gas is just that much cheaper now, and will remain so for a long time.

So, a lower price of oil will  help global economic growth in the next half decade or so,  but threatens to  make the global climate situation worse in the longer run.

Barkley Rosser