Road Runner

Supercycle or Not, Expensive Oil Is Unavoidable

Snitzer, I don't believe American's love affair with the automobile is "on the rocks" at all. In fact, I don't see much life style change as we, Americans, transition to higher mileage and plug-in vehicles.

There is no reason, except vanity, to own a 6 cylinder Toyota Camry. I know this personally. Modern engines and transmissions are far better in mileage and performance than in the past. The 4 cylinder Camry I used to own could be fully loaded with people and luggage and still drive 85 mph in 100 degree heat.

I see plug-in vehicles of the future being the preferred choice because electric drive vehicles perform better than engine/transmission vehicles. Just like the American cool car evolved from the suped-up V8 muscle cars of the 1970s, to the sleek sedans of the 1980s, to the SUVs of the 1990s and now, so it will continue to evolve to the quiet, smooth, and super-peppy plug-in electric drive cars and SUVs of the 2010s.

The American love affair with the automobile will continue strong.

Supercycle or Not, Expensive Oil Is Unavoidable

Charles Morand, Your article has some problems that make your conclusion that expensive oil is unavoidable suspect. Unless you believe that $130 oil is expensive. I don’t. That’s my medium term (10 years) price estimate for oil, though I could see spikes approaching $200 a barrel due to speculation.

First. The link in your article, “hurdles that currently stand in the way of electrification” references to the article “Debunking The PHEV Mythology” by John Peterson. This article should not be taken as the truth. There are many challenges to his premises that can be read at seekingalpha.com/artic....

Second. 45% of oil is used for gasoline in the US, and the US uses about 20% of current world production. We Americans are very wasteful with gasoline. It won’t have much negative effect on our lifestyles and personal economics if we move to much more fuel efficient vehicles. At $130 a barrel (about $3.90 gasoline), there will be plenty of incentive to move to more fuel efficient vehicles, that are available today, even if plug-in vehicles aren’t available at a reasonable price.

Third. The oil sands of Canada cost only about $70 a barrel to extract. And, the cost is dropping with cost improvements and scale. Canadian companies are increasing yearly production at a strong pace. The Canadian oil sands are second only to Saudi Arabia in known oil reserves. Also note that Iraq is not fully online with its oil.

Forth. Much of the current price of oil, around $70, is speculative. Oil is now an investment asset class used to hedge against inflation and the falling dollar. Thus, the “real” price of oil is far below $70. This artificially high price for oil promotes increasing supply and finding alternatives to oil.

Fifth. If is conventional wisdom that oil must move higher. Most people think this. Like with the housing bubble where the conventional wisdom was that housing prices will always continue to increase, oil has the potential to be run up to a very high price (over $150 a barrel in my mind) before the bubble pops.