Interesting Reading on oil prices

August 28, 2005

To all of those who worry about the price of oil and want to learn more
about it, there are a bunch of interesting articles, starting with last week’s Magazine article in the New York Times “The Breaking Point” which suggests there will be a huge crisis in the next decade. Then there is this article by Steven Levitt Of “Freakanomics
fame (I did not like the book, the examples were hard to get into, even
if the problems were interesting). The article is called “Peak Oil:
Welcome to the medias new version of Shark Attacks” and concludes that
the article is wrong and in some sense argues the opposite. In that
article a few articles are cited including this one,
which suggests that triple digit oil prices would change the behavior
of people and just looking at production is not for an economist
Finally, there is this article in which John Tierney bets with Mr. Oil
Doomsday himself Mathew Simmons that oil will not be $200 by 2010.

In Levitt’s article, he remidns us of the many predictions of doom for
mankind. Without dating myself, I was a student when Paul Erlich’s Limits to Growth
came out. It was mathematical modelling showing how earth was running
out of most natural resourecs and establishing time frames for this to
occur that are past us. While the scientific work was wrong, it did
raise awareness about finite resources, which is very good. However, in
my own personal opinion, I know oil will be higher twenty years from
now, but I am pretty sure it will be lower between now and then. Why?
Because it has gone up too fast, to levels at which too many abandoned,
unexplored and unknown technologies are feasible. Just last week, I
read a report by a well known investment bank upgrading the stock of Archer Daniels Midland,
the largest processor of corn and soybeans in the world, to a buy. One
of the main reasons for doing it was that AMD is starting to produce
plastics from corn. At these prices, it becomes feasible and
profitable. Think about it

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