History Will Repeat; Some Rules Never Change
Not so fast. In the energy crisis of the very early 1980s, oil jumped to what would be US$90 a barrel in today's money. And - of course - the market stepped in. Oil companies made enormous profits at such an inflated price, and they went on an exploration binge to increase production and thus make even more, and after a few years a lot of extra oil came onto the market. Prices came back down to earth. Supply and demand. Pretty simple, huh? And why would things be any different today? Well...they aren't. I can absolutely state that oil prices will fall substantially some time soon. Here are some factors that could or will make oil prices fall, categorised in the short, medium and long term.
Short term - Economic downturn of a major market. If my prediction is correct and China does suffer a severe economic correction, the oil price will fall through the floor. Since China is used as a major factor in justifying the current high prices, an economic collapse in that country would place particularly strong downward pressure on oil. We could very well see international oil prices languish at 1998 levels - that is, US$12 a barrel. 1998 was the year that major oil producer Russia defaulted on its sovereign debt and Saudi Arabia almost went bankrupt.
Medium term - Oil companies will want to produce more oil to exploit the high prices. They will spend considerably more on exploration. More oil will be discovered and rushed to market. More supply equals lower prices. As you're reading this, a bout of new exploration is being planned and taking place. We'll be seeing the results of that in a few years.
Long term - If I'm wrong and the above two factors do not materialise (and I'm certain that one or both will), sustained high oil prices will make companies pour resources into research and development of alternatives. The more expensive oil becomes, the faster the oil age will draw to a close. Humans are ingenious creatures. There are plenty of alternative energy sources that can be developed.
Greens might declare victory at the prospect of my long term prognosis. However, the alternatives may be far less palatable than wind farms dotting the countryside. I'm talking about (the currently non-viable, though with a bit of R&D...) oil shale, steaming coal for gas and nuclear power.
That notwithstanding, I think the short and medium term scenarios are far more likely. These sky high oil prices won't last. I'll stake whatever shreds of my remaining reputation on that!