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October 06, 2021

The benefits of triple digit oil prices

The world isn’t running out of oil. It never will. There is something like 170 billion barrels of the stuff trapped in the Alberta tar sands and over 500 billion barrels immersed in the Orinoco tar sands in Venezuela.

But what the world has run out of is the oil that it can afford to burn. Because the very triple digit oil prices that we will turn these places into tomorrow’s Saudi Arabia will translate into the same gasoline prices that will take millions of drivers right off the road.

Even worse, it will threaten to throw our economies right back into a recession.

Unless of course our economy changes.

There is nothing we can do to prevent the imminent return of triple digit oil prices. That’s simply where the cost curve lies. If you doubt that look what happened in the tar patch when oil prices fell to $40 per barrel in the last recession.

You might like filling up at the pumps when oil is trading at $40 per barrel but don’t expect too much to be coming out of them at that price. The same oil companies that are ramping up spending today quickly cut over $50 billion of investment when suddenly oil prices couldn’t cover the cost of getting the tar out of the ground and refining it into something that you could burn.

But there are many ways in which we can change our economy so that triple digit oil prices don’t have to spell recessions. Peak oil doesn’t have to mean peak GDP.

Distance will suddenly cost money. So much so that it won’t make sense any more to get our steel, let alone our food, from cheap labour halfway around the world. What producers will save on wages, they will more than pay in exploding transport costs.

In the coming world of triple digit oil prices, a lot of long lost industries will suddenly be coming home, from farms to steel mills. And while much could go terribly wrong in this transition we might just find that the new smaller, more local world is a lot more  sustainable than the big oily one we are about to leave behind.

-- by MSN Money guest blogger Jeff Rubin

 Jeff Rubin is the author of Why Your World is About to Get a Whole Lot Smaller.



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

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