The main reason why oil prices are falling is that we had a stretch of time where we
had rising supply from North America matched by falling supply from other places because
of developments in Libya and developments in Iraq, developments in Iran.
And the run of bad supply developments has largely stopped and the positive supply developments
in the United States have continued.
And the expectation that that will continue in the future is leading to a significant
decline in the price of oil.
My guess and guesses about oil prices are highly problematic is that they’re going
to stay down, since it seems to me there’s probably more room for positive supply surprises
from here than there is for negative supply surprises.
No one really knows the price sensitivity of tight oil, shale type oil in the United
States.
My best guess would be that at prices above $60 the broad trend towards increasing U.S.
supplies will continue.
And so I think we are making progress towards energy independence though I think energy
independence is a somewhat complex goal and may mean less than presidents of the United
States have often implied that it means.
Japan and Europe remain dependent on Middle East oil and it is hard to believe that we
could ever allow a situation to materialize where there was a vast difference in price
between the price of oil in Japan and Europe and the price in the United States.
And so if one asks the fundamental question is the world price of oil vulnerable to what
happens in the Middle East the answer to that question is probably somewhat less than it
was but it is still very vulnerable to what happens in the Middle East.
And in that sense even if the United States stops being a net importer of oil it will
still be very vulnerable and can’t really be said to be energy independent.