Prius Problem: Could Using Less Oil Make Oil More Expensive?

So you think you’re being virtuous by trading in the SUV for, say, a Prius? What if, instead, you’re really sticking the next guy in line with higher pump prices?

In the debate over why oil prices are so high, and where they’re going from here, there’s an intriguing idea making the rounds: The West’s sudden urge to kick the oil habit may run the risk of making oil even pricier in coming years.
The logic goes like this: Despite all the talk of “peak oil,” big producers in OPEC, and Russia and Mexico could tap 8 million to 10 million barrels per day of new oil — if they got the right market signals. That new supply would be enough to meet the world’s oil demand in the next decade, buying time to gradually shift over to a less oil-intensive economy without the whiplash oil-price volatility of recent months.

The rub, according to this theory, is those market signals. Though oil-consuming nations worry about security of supply, oil-producing nations worry about security of demand. If OPEC and other big producers were sure that expensive, long-term investments in new production capacity would find willing takers, they would pony up to pump the extra oil. But with all the talk in the West about curbing oil demand, the theory goes, oil producers are thinking twice about investing in new capacity.

This argument is laid out in a recent report from a Dutch energy think tank, the Clingendael International Energy Program. “Asking producing countries to take on the full risk of any possible (but unlikely) over-supply is not fair, and is also not in the long-term interest of the consumer countries,” the report says.

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