Opinion: What if it turns out there's plenty of oil? [w/video]
As the relative price of gasoline drops, people are not motivated to buy small, fuel efficient cars.
All the top executives in the auto industry tell me that oil supplies will only get tighter this decade. They predict that fuel prices will do nothing but go up. And they say customers will be clamoring for small, fuel-efficient cars. Or electric ones. But what if it turns out they're wrong?After all, over the last century the price of a gallon of gasoline in the United States, on an inflation-adjusted basis, has always come down. Always. Data from the Energy Information Administration shows that since 1919 the price of gasoline has spiked during war time or global turmoil, but it has always come down after that. This is a key reason why Corporate Average Fuel Economy regulations have not worked. As the relative price of gasoline drops over time, people are not motivated to buy small, fuel efficient cars.
A decade ago, the Peak Oil theory attracted a lot of adherents. It postulated that global oil production would peak in 2006, and that the following shortage would send oil prices skyrocketing. Sure enough, in 2008 a barrel of oil shot to U.S. $150. It looked like the Peak Oil theory was coming true. But less than 12 months later it dropped to under U.S. $40 a barrel. And though the price is now closer to U.S. $100 you don't hear as much talk about Peak Oil anymore. Here's why.
John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily".Every week he brings his unique insights as a Detroit insider to Autoblog readers.
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