For oil, tap ingenuity

Are we running out of oil?

Seems like a stupid question. Of course we're running out! There's only a finite amount of oil in the Earth's crust. So being nonrenewable, every barrel of oil that is extracted and burned is a barrel less of oil that exists.

Eventually we'll run out -- or so says conventional wisdom.

Conventional wisdom, however, often is handicapped by a poor grasp of economics. And among the important lessons of economics is that the supply of resources is less a matter of physics than of, well, economics.

Oil Market Dynamics through the Lens of the 2002-2009 Price Cycle1

Summary Report
During the period 2002 to 2008, the oil market experienced a sustained increase in prices with the annual average price rising year-on-year for seven consecutive years. This boom, however, ended with a spectacular collapse towards the end of 2008. These sharp price movements captured public and political attention and raised concerns within both major consumers and producers about the adverse economic, political and social consequences of such violent price movements.
In concert with recent debates over economic policy, the G20 and other bodies are considering policies designed to prevent a repeat of the recent swings in oil prices. An underlying theme in these discussions is that sharp price swings are undesirable since they increase uncertainty, hamper global economic growth, and undermine investment in both the oil and alternative energy sectors. Governments fear that speculative activity could cause oil prices to overshoot and choke off a burgeoning economic recovery.
The recent behaviour of prices has polarised views about the key drivers of oil prices. One view attributes the recent behaviour in oil prices to structural transformations in the fundamentals of the oil market. An alternative view considers that changes in fundamentals, or even expectations, have not been sufficiently dramatic to justify the extreme cycles in oil prices over the last two years and that oil markets have been distorted by substantial and volatile speculative financial flows. This dichotomy between fundamentals and speculation continues to dominate the current debate about the appropriate measures needed to reduce oil price volatility and to prevent a repeat of the latest price cycle.