|Fawley Oil Refinery, United Kingdom. December 17, 2005|
From Wikimedia Commons.
A report published under the auspices of the International Monetary Fund concedes that geological conditions will have an influence on the future price and availability of oil, possibly in the next decade. The report does not represent the views of the IMF, only the authors. But it is another indication that talking openly about physical limits on oil supply, rather than assuming they will expand indefinitely for all time to meet all human needs, is no longer taboo in mainstream circles.
The abstract of the report:
We discuss and reconcile two diametrically opposed views concerning the future of world oil production and prices. The geological view expects that physical constraints will dominate the future evolution of oil output and prices. It is supported by the fact that world oil production has plateaued since 2005 despite historically high prices, and that spare capacity has been near historic lows. The technological view of oil expects that higher oil prices must eventually have a decisive effect on oil output, by encouraging technological solutions. It is supported by the fact that high prices have, since 2003, led to upward revisions in production forecasts based on a purely geological view. We present a nonlinear econometric model of the world oil market that encompasses both views. The model performs far better than existing empirical models in forecasting oil prices and oil output out of sample. Its point forecast is for a near doubling of the real price of oil over the coming decade. The error bands are wide, and reflect sharply differing judgments on ultimately recoverable reserves, and on future price elasticities of oil demand and supply.