The Case for Cheaper Oil
Tim Evans says that while no one really knows how much oil is in the ground, he believes global supplies are unlikely to run out for at least 100 years. Big companies have proven reserves that are good for 20 years, he asserts. While growth in Asia is sure to push global demand ever higher, Evans thinks that the supply of recoverable crude oil is likely to expand. Here's why:
â¢ Economic pressure. There is a powerful incentive to find more oil. "Oil companies pride themselves on being able to find more oil than they use each year," Evans says. That's the only way that they can convince Wall Street that they have a viable future, thereby maintaining their stock prices at a decent level.
â¢ Low costs. The underlying cost of recovering oil is actually pretty low, according to Evans -- around $7 to $9 a barrel. Oil companies will sell it for $50 a barrel if they can, but they can still make a reasonable return on their investment by charging customers much less. Oil companies made money even when oil was selling for $12 a barrel in the 1980s.
â¢ Better late than never.Big Oil is in no particular rush to find every last proven reserve. They know they have enough to see them through the next 20 years. And it isn't a good investment to tie up capital now to find resources that won't be used for 30 or 40 years.
â¢ Technology: The biggest variable in the outlook for crude oil is technology. Improvements in exploration and refining technology will expand the idea of what recoverable oil is, according to Evans.