The oil glut and low prices reflect an affordability problem

Excellent piece explains why energy prices at a low do not necessarily mean the economy will pick up. Assumptions by economists about energy prices are not confirmed in our highly networked economy as Our Finite World explains.

Our Finite World

For a long time, there has been a belief that the decline in oil supply will come by way of high oil prices. Demand will exceed supply. It seems to me that this view is backward–the decline in supply will come through low oil prices.

The oil glut we are experiencing now reflects a worldwide affordability crisis. Because of a lack of affordability, demand is depressed. This lack of demand keeps prices low–below the cost of production for many producers. If the affordability issue cannot be fixed, it threatens to bring down the system by discouraging investment in oil production.

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