Oil price cure

The oil price isn't high because of waning reserves - in fact, they are plentiful - but because of lack of production and refining capacity brought on by inadequate investment, previously low prices and producers' fears of surpluses.

by Foreign Affairs
Last Updated: 23 Jul 2013

Growing demand from China, as well as the US, has also helped to push up prices in recent years. 'Proven' reserves could fuel the world economy for 38 years, but this significantly understates potential production because technological improvements, the incentive of high prices and new exploration are likely to make more reserves accessible.

Paradoxically, the cure for today's oil 'crisis' is for prices to remain substantially higher than the pre-2000 average of $18-$20 a barrel for an extended period of time. Only high prices will turn around two decades of sluggish investment, it is argued.

Two cheers for expensive oil
Leonardo Maugeri
Foreign Affairs, March/April 2006

Review by Steve Lodge.

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