Will the world ever run out of oil? No. Never! While the physical amount of oil in the ground is indeed finite, the laws of supply and demand ensure the last barrel will never be consumed. Fisher Investments believes the future of oil supply is simply a matter of economics and politics
Trust Supply and Demand
Good-old Economics 101: the law of supply and demand. Once we get down to the last drops of oil, few will be able to afford them. With supply so scarce, prices will skyrocket so only the most critical oil uses will be employed. End users will curb usage and/or find alternatives.
Fisher Investments knows oil makes up such a large percentage of the world's energy consumption today because it's historically one of the most cost-efficient energy resources. When using oil becomes inefficient (i.e., too costly because of supply scarcity), the world will have to adapt. If oil hits $10,000 a barrel by 2110, it's virtually certain people won't be driving gasoline-powered cars-the only use would be running antique 2010 Ferraris in museums. (Picture an eccentric museum curator shuffling around the display floor and telling first-graders: "Centuries ago, humans used to mine icky black oil from the ground and burn it to make autos run. Strange but true!") In the end, the world will likely adapt to meet future energy needs in ways not even our best scientists have yet envisioned.
This process of adaptation also goes by the economic term substitution effect. That is, the higher the oil price, the greater the incentive to reduce oil demand by using other energy sources. Fisher Investments knows viable substitutes aren't found overnight, so suddenly higher oil prices in the short term could cause a period of serious pain to many parts of the economy. Whole industries could be crushed while consumers would be forced to alter their consumption habits. Ironically, the faster the pain happens, the faster the pain is over (like ripping off a Band-Aid). The rate of substitution will be a function of how fast prices rise and how damaging they are to the economy.
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