Don't Bet On $800-A-Barrel Oil

A tsunami of fuel innovation will be unleashed well before gasoline costs $20 a gallon.

It is a strange thing in this recession: For the first time since 1983, worldwide oil use has declined in two consecutive years. Maybe that’s no surprise “in this economy,” to use the now universal mantra. But despite the decline in demand, oil prices are still bouncing around $60 a barrel, instead of collapsing back to the 1986 recession level of $20 a barrel (2009 dollars). For energy cognoscenti and global commodity traders, the explanation for price resilience is simple. The world is having trouble finding and producing cheap, easy oil.
It’s a good bet that oil will never reach the stratospheric level of $800 a barrel. At the same time, it is a fair bet that oil prices will rise again and surpass the previous peak of $150. And next time, absent a global economic collapse (most recently triggered by the financial sector, not by oil prices), it is likely that prices will stay high for some time. The sustained impact of oil staying beyond $100 a barrel will unleash a tsunami of innovation and production.

We’ll see plenty of liquid fuels for a long time before people give up the convenience of getting to Tuscany by jet instead of ship, or from Chicago to San Francisco by air in three hours, instead of by rail in 50 hours. (In the latter case, having traveled that route on Amtrak’s Zephyr I’ll confess that it is very pleasant if you have the time.)

Forbes