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Higher oil prices may be better
They push forward the development of vehicles that use alternative fuels
- Gulf News
- Published: 00:00 October 21, 2006
It's easy to label Opec's decision to cut oil production and stop slumping prices as opportunistic. After all, while prices have dropped by almost 25 per cent over the past three weeks, they are still on par with October 2005. The steep price drop is nothing more than the backside of a dramatic price spike over the last year.
But Opec, and the world, may be better off with higher prices, for now.
Oil demand is expected to surge over the next 10 years, fuelled in no small part by growing economies in China and India. Developing and expanding oil production is a costly venture, but if oil-producing countries invest in expanding production now, demand on available resources in the next decade won't result it truly horrific prices.
Opec will be forced to walk a fine line in gauging oil prices. Forcing prices too high will open the door for alternative fuels. Many in the US would like to see the country's dependence on foreign oil reduced, and turning the country's agricultural belt into a major player in the energy market would only be icing on the cake.
The main factor that has stopped the alternative fuel revolution is that continuing to use oil is still cheaper than the cost to develop and convert vehicles to use ethanol. If Opec cuts production too much, it may remove that barrier.
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