What prompted me to write this post is that suddenly all the talks about the use and production of alternative sources of fuel and conservation of energy have disappeared because Oil although not in the 2-digit territory but is well below $ 147 a barrel. As usual the talks of alternative fuel , electric car , nuclear energy all started with a wham and ended in a whimper.We all know that the oil crisis is not new to the world we had seen it in 70's and times earlier than that . So why are we faltering again and again and stumbling due to high oil prices,what has prevented a radical shift to the alternative source of energy and a radical shift in the demand for crude oil?
This time its no different , now since oil price is easing off we are back to the square one.No wonder ,the day crude oil came down by $5 from its high of $ 147 , the coal stocks came down too , indicating the market is discounting the potential of coal stocks , although I agree it is just indicative but it does suggest the historical behavior.So if the history is anything to go by then this easing crude oil prices is neither due to the result of radical shift in the demand nor due to the surfacing of new alternative source of energy.This is just the temporary suppression in the demand which will surface again once the crude oil is back to the normal and stops visiting the high price territory. Why this happens ? Let us take a simple example:electric car came into existence but never was improvised or its not even seen frequently . The reason , the car is appealing till the time , oil prices are obscenely high but once prices go down we switch back to the conventional form of energy , this is not radical shift,but this is a temporary suppression of demand.Hence it is also difficult for the auto companies to rely on the temporary demand of electric car to invest in some serious technology to build a more efficient electric engine.
The demand suppression that I mentioned above is the short run effect of increase in prices but in the long run either the supply needs to get adjusted or the demand needs to take a permanent shift. When we zero in the long term supply situation , first if we consider the supply of oil , no new incremental refinery has been invested in although we had oil crisis before numerous times and second , investment in new sources of energy , has not caught required consistent attention so as to become a substitute for the oil. Demand has also refused to take a leftward shift . So we have seen several oil spikes and their evil effects on economies.
This whole thought was running in my mind for not to make a prediction of crude oil prices but to ponder over the thought that what will push the serious and the real efforts to improvise, produce the alternative sources of energy and reduce the dependency on oil or on second thought does it mean that once again the currently easing of oil price does not bode well or to be more precise does not bode something different in the long run ??
Ergo I have question to the reader that do you think that this time the high oil prices , rattled economy would bring about a significant and long lasting shift in the demand or a shift to the alternative sources of energy ?????
