10 Oil Price Drivers, and What Happens Now?

The following list of 10 oil price drivers is taken from a John Hampson article on Seeking Alpha:

1. Developments in the Middle East and North Africa - A real supply loss in Libya and fear of supply loss elsewhere. The fear factor and uncertainty premium is likely to last all the way through to new elections, but intermittent "good news" from the region should ease the oil price.

2. Excessive liquidity and speculative momentum: Due to low interest rates in the developed world, money is encouraged to seek a return in hard assets...

3. A secular bull market in commodities: Born out of underinvestment in supply in the 1980s and 1990s and increased global demand (industrialisation of China, global population growth). This provides an ongoing anchor for oil investors and speculators, although not forever...

4. Peak oil: Where demand permanently exceeds supply...

5. Global growth: Leading indicators and global growth forecasts continue to point to 2011 being a strong year. However, higher crude oil prices crimp growth....

6. A hedge against inflation: ... inflation appears set to accelerate...

7. Technical analysis...

8. A weak U.S. dollar...

9. Crude oil price versus futures price 11 months out....

10. Solar cycles... _SeekingAlpha

Most of the items on the list relate to speculative drivers, investment strategies for big investors, and fear factors. Predictions of sustained global growth at this point in time are ludicrous. The most useful driver-predictors listed are those relating to monetary policies of central banks, and the weakening Obama dollar.

A number of analysts are starting to see a commodities selloff in the near future. More large institutions are beginning to recommend a selling of commodities assets that are heavily weighted in crude oil. It is clear that the price of oil is inflated, but it can be tricky teasing the genuine threads of long-term causation from the threads of fear, speculation, and government interference.

In the long run, crude oil becomes less ideal as fuel, feedstock, or investment.   Synthetic liquid fuels will be priced more competitively with oil over the next decade, as improved catalysts and industrial methods are perfected.  Unconventional gas will find more uses to substitute for crude oil and conventional gas.  Coal, bitumens, and kerogens are likely to find many new uses in substitution for conventional crude.  Biomass fuels and microbial fuels will likewise improve technologically, and eventually be placed at a strategic advantage vis a vis crude oil.

As improved nuclear energy technologies come on line, the need for coal and gas for electric power generation will diminish, and those feedstocks will be more cheaply available as transportation fuels and industrial feedstocks.

In the long run, the trends all point to a reduced need for crude oil in all its uses.  But over the next 30 years or so world markets will be subject to all the real and imagined drivers of oil prices.  Bad political leadership (as in President Obama's "energy starvation" policies) will tend to multiply the economic difficulties of residents, over the short to intermediate term.

But it is important that more observant and discerning individuals pay attention to the imminent divide between a growing Idiocracy, and an emerging coalition of competence.  The more competent coalition may not have the benefit of operating under a UN sanctioned nation-state government, but it should be able to take advantage of all the benefits of modern technologies all the same.

Pay attention.