Thursday, December 20, 2007

Question: Will Oil Prices Stay High?

Resource management requires an understanding of both supply and demand, an assessment of the impacts of policy options and the political determination of which paths to pursue.  Two articles today from QandO illustrate the dynamics of resource management and how these various elements interact.
The first discusses the present price of oil.  Pricing is a function of demand and supply.  High demand and short supply equate to higher prices.  Sooner or later the market responds by increasing supply, developing alternative supply options or developing efficiencies to reduce demand: all acting to soften prices. 
When a free market is allowed to operate, it will adjust to high demands by increasing supply options, eventually phasing out an expensive resource with a cheaper alternative.  Limits are not real: they are a temporary economic condition which market adjustments remove long before any actual physical limit of a resource is reached. Resources are not, they become: long before any physical limit is reached, a resource will be re-defined by technological change and innovation that significantly alter the balance of supply and demand, either resulting in cheaper prices or the replacement of the resource with more efficient, economic alternatives.
At the other end of resource management are policy options to address the perceived impacts of resource utilisation.  In the case of energy resources this means climate change, and the second post refers to a list of ten questions posed by TV personality Pat Sajak on climate change.
Sajak asks:
  • what is the perfect temperature?
  • what is the average temperature of the earth?
  • what factors contributed to climate change in the past, and how do we know they are not the primary factors today?
  • why is there such a concerted effort to suppress discussion and dissent?
  • why are the predicted effects of global warming open to such wide variation?
  • can climate change be beneficial?
  • should drastic changes in public policy be based on a "what if?" proposition?
  • what will be the human impact of proposed AGW policies?
  • how will we measure success?
  • how has this movement gained such momentum?
So what are the metrics for climate change?
For resources supply and demand, the metric is simple and measurable: it is price.  The problem with hypothetical, perceived, ideological and otherwise mythical entities like global warming is there is no precise metric, no robust, scientifically verifiable, measurable value that has meaning for the real world in which people live.  Any model can establish a threshold value, just like a video game.  But real life is not a simulation.  It is not a scripted video game and computer calculations may seem sophisticated but they are still only a guess reliant upon ideology for their legitimacy and authority. 
If models were precise we could predict the price of oil next year.  We can't.  And if we can not predict the future of well-defined metrics, why would we place any reliance on imprecise, uncertain and meaningless measures such as "global mean temperature"?