You've made some interesting responses that we could build upon to further realize the challenges, possibilities, and opportunites, but I wanted to sort this out first:
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Originally Posted by aceventura3
Do we know what the true price of oil is? Given all the factors that make up the price of oil, if we simply looked at the costs of production, refining, shipping, and reasonable profit those costs might less than 50% of the current cost. Have those costs materially changed in the past 12 months? I don't think they have.
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We can try to find the "true" price of oil, but we need to deal with the "real" price, which is the price the market serves us. We could isolate the cost of production and distribution, but we cannot stop there, as we are dealing with open and free markets (for the most part). The issue isn't so much the cost of production (though they are increasing due to the technology cost you've mentioned for extracting deeper oil, and also due to skyrocketing steel prices, which affect construction costs), but what we are really at the mercy of is the cost of consumption.
I came across this interesting piece:
Global Energy: Increasingly Unsustainable. It was published in
Finance & Development, which is a part of the IMF, so let's keep biases in mind. But what interests me is the data. Here's a sample:
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China and India are the emerging giants of world energy. China will overtake the United States soon after 2010 to become the world's biggest energy consumer. In 2005, U.S. demand was 34 percent higher than Chinese demand.
[Developing countries will account for 74% of the overall increase in demand for fossil fuels.]
On current trends, China and India will account for more than 40 percent of the increase in global energy use by 2030.
China will overtake the United States as the largest car market in the world by 2016.
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India needs to import 75% of its oil to meet demand, so their economy has relatively inelastic demand for it. Their economy has suffered lately because of high prices, but it will be a matter of time before the government does something to alleviate this and encourage further development and investment. And China imports a heck of a lot too, but I don't have numbers handy.
The key issue is that both of these economies are growing as developing nations becoming industrialized nations. This means their growth in demand for natural resources occurs at a rate several times higher than that of industrialized nations. Consider oil & steel, which are the backbone resources for expanding economies. The amount of oil that will be pumping into these countries, coupled with the amount of steel being shipped there, will keep prices for both items relatively high. This isn't necessarily tied purely to the cost of production and delivery, it's also tied to the price of these items in an open market, in addition to investors dropping large amounts of money into the industries that mine and extract them.
As you can see, it's a complex set of variables. But note how it all comes down to one real cause: Demand is skyrocketing (relative to historic demand in these specific countries). The cost of industrializing large populations isn't cheap.
Of course the price of oil is high. But now what do we do? This is something we are starting to get at.