Debunking ‘Lower Oil Supply Will Raise Prices’

We often hear the statement, “When oil supply is lower, oil prices will rise because of scarcity.” Now, we are getting to see firsthand whether oil prices really do rise, as oil supplies become more scarce.

Figure 1. Figure from the OPEC Monthly Oil Market Report for August 2019 showing world and OPEC oil production by month.

Figure 1 shows that world oil supply hit a peak in November 2018 and has declined since then, mostly because of a decline in OPEC’s production. So, total oil production seems to be down for about eight months, relative to the peak in November 2018.

Despite this big cutback by OPEC in its oil production, prices have not responded as OPEC had hoped:

Figure 2. Average monthly spot Brent Oil prices, based on EIA data.

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Humans Seem to Need External Energy

Strange as it may seem, humans seem to have evolved in a way that we have a need for external energy, such as energy from burning wood or fossil fuels. While the evidence is not 100% certain, it appears that we learned to use fire long enough ago that it is now  necessary for our food to be cooked. Otherwise, in many climates, we would need to spend half the day chewing our food, and we would not be able to do much besides gather food and eat it. (People on raw food diets get around this issue by using a blender, which also uses external energy.)

There are other evolutionary deficiencies as well: How do we deal with our lack of fur? How do we deal with our evolutionary dental problems? How do we deal with “survival of the fittest”? If we want our children to live, we continually need more food for our growing families. Cooked food gives more choice of food supply. We don’t think of humans as having instincts, but like dogs, we have a tendency toward hierarchical behavior, and this affects our need for (or at least “want for”) external energy.

An additional issue, now, of course, is that the world’s population is over 7 billion people. Even if we had not evolved to require using external energy, cooking our food makes many more types of food available, and is from this point of view much more practical than raw food. Cooking food does not in itself take a huge amount of external energy, but once we had learned the skill of using external energy, it opened new doors for other applications.

In this post, I will explain how these and other evolutionary issues relate to mankind’s need for external energy, such as wood, or gasoline, or electricity. Continue reading