• Dec 14, 2007
In 1995, way back in the days of print, I was doing research for the 100th anniversary of a magazine called Automotive Industries. It actually started out in 1895 as a magazine called The Horseless Age, a much more romantic name for a publication, don't you think? It was fascinating to go through all of the back issues and watch how the auto industry evolved literally each time I turned a page.
In the course of my research I started to notice a pattern. Starting in the late 1920s, the magazine ran an article warning that we were running out of oil. And once a decade or so after that there would be another article, written by a different editor, interviewing a different expert who predicted essentially the same thing--that we'd be running out of oil in the next 15 to 20 years.

That got me into looking at the historical price of gasoline in this country, and the data is illuminating (click here to see gas prices since 1919). The price of gasoline plummeted after WWI. It soared in the late 1930s as war broke out in Europe and Asia. Then it slid for nearly thirty years after WWII. In the 1970s, two oil crises pushed the cost of gasoline to all-time highs. And that was followed by a collapse in prices. As recently as 1999, the price of oil was only $17 a barrel! Today, of course, the price is soaring again.

But the point is: the history of oil shows a big run-up in prices every two to three decades followed by a collapse. And what are we in today? A big run-up in prices. Do you see where I'm going with this?

There's no question that demand for oil is pushing up prices. China, India and other developing nations are as thirsty for this stuff as we are. But increasing demand is not what made the price soar. That was the terrorist attacks of 9/11, the war in Iraq, the attempt to blow up Saudi Arabia's largest pumping station, the confrontations with Iran, political troubles in Angola, and the billions of dollars speculators are pouring into oil market futures.

Clearly it's the war, political unrest and speculation that primarily pushed the price up nearly five-fold in only seven years. History shows that won't last.

At a time when so many are worried about the impact of high oil prices on the auto industry, I'm worried about the opposite effect. What if, just as the industry is pouring billions into hybrids, clean diesels, fuel cells and other fuel-saving technologies to meet a 35 mpg CAFE by 2020, the price of oil slides back down to, say, $30 a barrel? Will consumers happily pay for this costly technology if gasoline suddenly drops to $1.50 a gallon in the US?

I'm not talking about this happening anytime soon. I figure it'll take about a decade for prices to settle down again. But in automotive terms, that's only two design cycles away.

I know, I know, everyone tells me the price of oil will never, ever go down to $30 a barrel again, not even if you adjust it for future inflation. They all give me a bemused smile that says, "This guy's off his rocker!"

But I point to history. It's on my side.

###

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  • 25 Comments
      • 7 Years Ago
      This whole article is riddled with logical fallacies.
        • 7 Years Ago
        Care to point them out instead of making blanket statements?
      • 7 Years Ago
      John brings up some interesting information, raises some interesting points -- however, his analysis fails to account for a couple of important factors.

      1. The industrialization of India and China is a huge, huge, world-altering occurrence unlike anything that we've seen since the automobile was invented.

      2. Global warming is a manageable problem today, but it probably rules out future large-scale development of tar sands, coal-to-liquids, and oil shale. These would drastically increase our global CO2 emissions at a time when nearly everyone believes we should be reducing them.

        • 7 Years Ago
        Your point #1 is probably the main item that people can't grasp when it comes to peak oil. In 1993 China actually broke even in terms of consumption versus domestic production at 3 million barrels a day. In 2006, they are consuming 8 million a day and producing 4. Let's put that in perspective. The US was 16 million per day in consumption and 10 million per day in production in 1993. In 2004 the US consumed 20 million per day and produced 7 million per day. China has nearly tripled consumption in 15 years! Given China's population is 1.3 billion (over 4 times higher than the US), and their GDP growth is somewhere around 10% you can start to see why this run up seems to be happening recently.

        If China's population were to consume oil at our rate per capita, they would consume over 80 million barrels a day. Current worlwide oil production is 86 million barrels a day.
      • 7 Years Ago
      What about refinery capacity? My understanding right now is that we're maxed on out this and no-one's building new ones. This article doesn't address any serious issues.
      • 7 Years Ago
      Like anyone who uses petrol products I'd like them to cost less........
      Sendng $$ to 'fanatics' in the world does not entertainme either.
      I recentlyrad of a process for cracking carbon base waste to components, gas & oil. Non polluting & economical. Is someone blowin smoke up my exahaustpipe? here is a link >
      http://www.globalresourcecorp.com/
      someone with a brain tell me what is this???
      Thanx
      • 7 Years Ago
      @hoeun kim: Understood, to make my point a bit clearer, a person that makes, say, $600 dollars a week;isn't going to bother trying to understand inflation to dollar ratios. Their concern would be how far to stretch that dollar now that they have to pay $40 to fill their tank when it used to cost them $20. I'm speaking of a person to person situation, not the average of all US consumers.
      • 7 Years Ago
      When the oil prices drop again (history's trend), nation's governments will have to be responsible, and keep working towards stricter regulations on C02 emissions, but they probably wont (history's trend).

      • 7 Years Ago
      As much as I want new clean energy to boom, the fact is that oil sands in Canada and oil schale in the midwest is enough for another 200 years of oil. With coal gasification and carbon sequestration we are most definitely not in an oil pinch other than in speculative markets. There is enough gasified coal under the midwest to surpass almost all the oil currently accounted for in the middle east. Don't believe me? Start looking at oil investments.

      With that said I really REALLY hope combinations of battery and ultra-capacitor technology gains enough ground to make those possibilities irrelevant.
      • 7 Years Ago
      even if it doesn't go down, and we do run out, there's a simple answer...whale oil!!

      This is a great article! very good info that I didn't know (early oil crisis stuff)
        • 7 Years Ago
        only some are, and do you really think I was being serious?
        • 7 Years Ago
        whales are an endangered species
      • 7 Years Ago
      /agree
      • 7 Years Ago
      First of all...oil doesn't come from decayed dinosaurs despite what your nursery school teacher told you...

      Secondly...if John's premise is correct (and I believe that it essentially is) that Oil prices are inherently cyclical at this point with our ever increasing capacity to find and exploit oil deposits offset by an ever growing population and appetite for oil, the REAL question here that John doesn't ask is this: If the price of oil is not driven by supply/demand and is instead driven by rational/irrational fears regarding our own safety and the safety of accessing such oil networks that do exist, do we see a DECREASE in the overall instability of the 2nd and 3rd world nations in which most of the current oil networks currently exist? I would say no...as these 2nd and 3rd world nations try to claw their way out of the stone age they are becoming less, not more stable...Therefore I would propose that John's initial assertion--that Oil prices are cyclical and not directly tied to its supply at this point--is correct...But that his conclusion--that Oil prices will display a marked and prolonged decline inside of a 10 year period--is not.
        • 7 Years Ago
        Agreed on your middle east point, though we going to hit the oil peak, and the sad thing is, we won't know it.
      • 7 Years Ago
      Any economist worth his salt will tell you that the real price of commodities tends to fall over time. Oil is a commodity, with viable substitutes that will become more favored when oil prices are high.
        • 7 Years Ago
        I agree. The "peak oil" idea (that it's running out in x years) is just economically illogical ... while it is true that some finite amount has to exist, that amount depends on many factors, how deep to drill, how 'pure' the crude is, how much refining has to be done, etc etc.
        The Alberta Oil Sands are an excellent example - before they weren't even considered an oil 'reserve' in the traditional sense - because while billions of barrels are in the field, they could never extract the oil from the bitumen. But today, those fields have become economically viable (because the price of oil makes it so) and are now included in estimates of future reserve.
        And as the price continues to rise (and that is likely a temporary trend, due to the war, etc.) more and more oil fields that were previously thought to be unusable will become viable and profitable.
      • 7 Years Ago
      There are too many oil/global warming-related articles out in the internet. They all say different things, and cite equally differing facts as to whether or not we're doomed for armageddon. Personally, I think there is simply too much money to be made on both sides of the argument to totally buy into either side. The only certainty is that the US government will screw everything up related to this topic. So there is my non-opinion opinion.
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