It has been widely assumed for years that the world oil demand would always be met by the world oil supply. The supply and price of oil is controlled by oil producing nations under the OPEC umbrella. These nations can control the supply and price of oil by simply increasing or decreasing production. This economic dance has gone on for decades, but it is about to end. Author, Jeff Rubin, former chief economist at CIBC World Markets, predicts that we are consuming oil at a rate that far exceeds current reserves or the amount the Earth can produce. This very basic statement comprises the premise of the book. World economies over the last several decades have been closely tied to the price of oil. Cheap oil provides fuel to an economy and as an economy heats up so does the demand for oil. An increase in demand drives up the barrel price of oil. This in turn drives up the cost of production, transportation, and goods for sale. The effect of this cost increase cools the economy and a recession occurs. This cycle has been repeating itself for decades but according to Rubin, it will not continue. Rubin’s thesis contends that depleting world oil reserves and an increase in demand can no longer be met with an increase in supply. He claims we are heading towards record high oil prices and record low oil inventories. High oil prices equate to high transportation costs. World economies will be forced to abandon cheap labour and move production back closer to the consumer base. These high transportation costs will also affect where we live, shop, and spend our leisure time. According to Rubin our “world is about to get a whole lot smaller”. The shift from cheap labour to cheap transportation costs will prove great for some countries but disastrous for others. The book is concise and intended for the average consumer, not just economists or oil industry executives. Rubin should be commended in simplifying what otherwise could be a complicated economic lesson. To explain fluctuations in oil prices, he uses the analogy of playing ping pong on a moving train, “The ball may appear to be bouncing back and forth, but in the grand scheme it is really moving in one direction”. Rubin is able to demonstrate how the higher energy costs will fundamentally change the way each and every one of us live our daily lives. He explains that higher transportation costs will force people to live in smaller homes in denser communities, drive smaller cars, live more frugally, and travel less. This transformation is not all bad. To lessen the burning of fossil fuels and to possibly find a solution to carbon emissions is certainly optimistic. Who knows, quite possibly we could be entering into a world that is more livable than the one we left behind. I highly recommend this to anyone seeking to understand the true fundamentals behind peak oil and exploding oil prices in the very near future. The book is a “wake up call” for anyone who believes that there are alternative solutions that will satisfy the global appetite for oil.
It has been widely assumed for years that the world oil demand would always be met by the world oil supply. The supply and price of oil is controlled by oil producing nations under the OPEC umbrella. These nations can control the supply and price of oil by simply increasing or decreasing production. This economic dance has gone on for decades, but it is about to end.
ReplyDeleteAuthor, Jeff Rubin, former chief economist at CIBC World Markets, predicts that we are consuming oil at a rate that far exceeds current reserves or the amount the Earth can produce. This very basic statement comprises the premise of the book. World economies over the last several decades have been closely tied to the price of oil. Cheap oil provides fuel to an economy and as an economy heats up so does the demand for oil. An increase in demand drives up the barrel price of oil. This in turn drives up the cost of production, transportation, and goods for sale. The effect of this cost increase cools the economy and a recession occurs. This cycle has been repeating itself for decades but according to Rubin, it will not continue.
Rubin’s thesis contends that depleting world oil reserves and an increase in demand can no longer be met with an increase in supply. He claims we are heading towards record high oil prices and record low oil inventories. High oil prices equate to high transportation costs. World economies will be forced to abandon cheap labour and move production back closer to the consumer base. These high transportation costs will also affect where we live, shop, and spend our leisure time. According to Rubin our “world is about to get a whole lot smaller”. The shift from cheap labour to cheap transportation costs will prove great for some countries but disastrous for others.
The book is concise and intended for the average consumer, not just economists or oil industry executives. Rubin should be commended in simplifying what otherwise could be a complicated economic lesson. To explain fluctuations in oil prices, he uses the analogy of playing ping pong on a moving train, “The ball may appear to be bouncing back and forth, but in the grand scheme it is really moving in one direction”. Rubin is able to demonstrate how the higher energy costs will fundamentally change the way each and every one of us live our daily lives. He explains that higher transportation costs will force people to live in smaller homes in denser communities, drive smaller cars, live more frugally, and travel less. This transformation is not all bad. To lessen the burning of fossil fuels and to possibly find a solution to carbon emissions is certainly optimistic. Who knows, quite possibly we could be entering into a world that is more livable than the one we left behind.
I highly recommend this to anyone seeking to understand the true fundamentals behind peak oil and exploding oil prices in the very near future. The book is a “wake up call” for anyone who believes that there are alternative solutions that will satisfy the global appetite for oil.