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Technology Alone Won't Hold Oil Prices Down

Readers Report


We share your optimism about technology's revolutionary impact on the oil industry ("The new economics of oil," Cover Story, Nov. 3). It has substantially lowered the costs associated with both finding and producing crude oil reserves, and it is likely to continue to do so, in addition to adding dramatically to the world's proven oil reserves.

While revolutionary, technology should not, however, be seen as the panacea that will hold oil prices in check all by itself as we enter the 21st century. The supply and cost of crude oil and petroleum products will remain volatile, with a bias to the upside. In a just-in-time environment, both public and private integrated oil companies are unlikely to tie up capital on surplus inventories and investments in spare refining and production capacity. In a world of rising demand, this will result in little or no inventory cushion to insulate markets from the occurrence of inevitable and unforeseen surprises that are endemic in a commodity business.

No one can say for sure what the prices of crude oil and refined petroleum products will be in the future, but we don't expect the current trend of real price deflation to continue in the wake of rising demand and tighter availabilities of refined products, especially in a world prone to both economic and geopolitical surprises. In the end, the petroleum business will continue to be seen for what it is--a commodity business, even with the deployment of greater amounts of technology.

John H. Lichtblau Chairman

Lawrence J. Goldstein


Alan M. Herbst

Manager, Business Development

PIRA Energy Group

New York

As I read your piece, I kept thinking that there must be some kind of iron law of economics and technology: Sunk investment in a technology attracts investment in the refinement of that technology, resulting in greater investment and entrenchment of the technology and the industry built on it.

The other prime example is, of course, the internal combustion engine. Nothing could make more sense for an industry than to invest in technology that preserves its accumulated assets and market share. Lacking that investment, fundamentally different and threatening technologies remain experimental, not yet competitive, something that could be in our future. Or, perhaps, just out of reach--capital-malnourished.

Mark Braly

Davis, Calif.Return to top


Does the Asian currency crisis remind anyone of the collapse of the Bretton Woods agreement in the early '70s? ("How bad can it get?" International Business, Oct. 27). Remember, at that time European currencies were getting battered because of their links to an overvalued U.S. dollar. Measures to support these currencies were a drag on the underlying economies. Some countries devalued by occasional adjustments to their trading band, creating the "crawling peg." Later, freely floating currencies became the norm, but not before great debate over the viability of market-driven exchange rates.

European countries had the stability to support floating exchange rates, but it seems few Asian countries have reached that level of maturity. Now, Europe seems to be turning the clock back, this time linking up with the Deutschemark via the euro. The debate over floating exchange rates continues.

J. Laurence Jones III

Charlotte, N.C.Return to top

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