Prices Could Permanently Double Over the Next Decade According to a New Report by an International Monetary Fund Research Team
24 May 2012
A new warning from the International Monetary Fund underscores the urgency of opening markets to competition from alternative fuels such as natural gas ethanol methanol and electricity. The IMF Working Paper entitled “The Future of Oil: Geology versus Technology” predicts that oil prices could permanently double in the next decade.
The IMF report warns that a doubling in oil prices will send the global economy into ‘uncharted territory.
The paper combines two opposing positions in the debate to arrive at a more accurate model for predicting oil prices. On the one hand the “peak oil” argument holds that the consumption of finite resources will push prices ever higher. On the other the technological argument says that higher prices will spur new methods for extracting oil as well as substitutions for petroleum products. These advances in turn will lead to greater output and eventually lower prices.
The authors concluded that geological constraints on production plus “demand shocks” such as rapid growth in China and India best explain the trend in oil prices. At the same time the researchers found limits to the impact of technological advances in the long run. The result is a near doubling in oil prices and a “pain barrier” beyond which there is lasting damage to economic growth.