Oil Price Impact Thoughts Part 2: Mid- to Long-Term

If one believes that peak demand for oil will occur around 2040, then there is plenty of time for fluctuations in oil price.

Here are some of my thoughts on what could impact oil prices (my thinking here is oil prices changing up or down by 25% or more):



Mid-term (3 to 9 years):

China (potential for lower prices): Once again, looking at IEA data, from 2014 - 2018, China is seeing the greatest increased need for oil. I'm not sure that anyone thinks China's economy will grow at a faster pace so I doubt China will be a cause for higher prices. If China finally heads into a recession, growth in demand expectations would drop.

Exploration (potential for higher prices): Via Bloomberg:

"The worldwide cushion of spare production capacity will shrink without further investment in exploration and output, Neil Atkinson, the head of the IEA’s oil markets and industry division, said at a conference in Manama, Bahrain."

Essentially, when oil prices tumbled, capital investments in exploration tumbled. Since oil wells eventually dry up, more oil wells need to be discovered to keep supply levels up. Since investments have declined, there is a chance that we could see a supply crunch.

Long-term (10 plus years):

Decline of the Internal Combustion Engine (potential for lower prices): as discussed in an earlier post, there are different timelines on when experts think we'll hit peak demand. My position is that peak demand will hit at the far end of expectations (2040s) versus the very near future (2020s). Yet, at some point, a higher percentage of vehicles will be all electric or at least hybrids.

World governments (potential for lower prices): as discussed in the same post regarding the internal combustion engine, countries and even cities are making pledges regarding gas vehicles. How aggressive they get will impact how quickly we get to peak oil (this could easily fall under the mid-term category).

Other technological advances (potential for lower prices): here's an article about deep see wind farms. Who knows what energy advances might occur in the future.

And then there are always Iran, Iraq/Kurds, Libya, worldwide recession, etc. etc that could impact oil prices, as well.