Oil, Peak Oil, and Recent Price Declines

James Hamilton has a nice post, quoting David Cohen of The Oil Drum.  He explains the standard economic argument that the price of a finite resource being depleted should rise at a percentage rate equal to the rate of interest.  But, of course, it hasn’t.  Then a discussion of why not, and will it soon.

In contrast, my view is that the market is characterized by cartels and long time lags to get new production to market, as well as long time lags in production declines.  As a result, we have oscillating prices.

My eye is drawn to 1986, when the price of oil plummetted.  At some point, I expect oil price to drop significantly.

Hamilton is worth reading, though he doesn’t share my forecast, because he both has an opinion, but also has some humility about the forecasting business.  That’s rare in the blogosphere.