For those who think – or hope – we’re nearing the end of the age of oil, look no further than today’s media preoccupation with whether or not Saudi Arabia might cut production to manipulate price upwards. The enduring issue, however, is not tomorrow’s oil price but why that price matters, and why oil’s oligarchs can still manipulate markets, and for how long. Consider the state of play.
Without fanfare, a month ago the world passed a milestone. Global petroleum production blew past 100 million barrels per day. For context: that is more energy every day than all the wind farms on the planet generate in two months. It also means that the world is over-supplied with oil; hence the recent price rout and the Saudi eagerness to nudge prices back up by tightening their spigot, and President Trump’s voluble objection to that.
It is axiomatic that oversupplying a commodity collapses prices. With petroleum, what’s at stake is consequential. Oil at $50 instead of, say, $80 per barrel represents a $1 trillion loss each year for producers, and conversely that much in savings for consumers. That asymmetry creates obvious tensions. But the reason for today’s state of oversupply comes from a new energy reality that is still poorly understood.
Mark P. Mills is a senior fellow at the Manhattan Institute and a faculty fellow at Northwestern University’s McCormick School of Engineering. In 2016, he was named “Energy Writer of the Year” by the American Energy Society. Follow him on Twitter here.