US Crude Oil Production data by YCharts
As the world's most influential marginal producer, OPEC can sway prices with its own production choices. As it let oil remain over $100 per barrel between 2010 and 2014 it let competitors into the market, reduced demand for its product, and backed itself into the corner it's in today that requires years of low oil prices to squeeze out high cost producers. It won't make that mistake again.
Innovation hasn't stopped with $35 oil
While OPEC looks at the dynamic facing oil prices over the next 5-10 years, companies around the world are thinking about what transportation will look like in 50 years. And that hasn't stopped because of low oil prices.
Electric vehicle innovation and production growth can be seen as a proxy for these changes, but long-term we'll have hydrogen vehicles, ride sharing, and even better mass transit (think Hyperloop) to help reduce dependence on oil.
Ford has developed a concept car with solar cells integrated in the roof, powering the car as you drive. Image: Ford and SunPower.
Tesla Motors gets a lot of attention for its plan to build 500,000 electric vehicles by 2020 and that will play a modest role in reducing oil consumption. But the fact that automakers like Ford has been touting electric vehicles and autonomous vehicles at CES in Las Vegas recently may be even more important. CEO Mark Fields says the company's EV and self-driving plans will be aimed at the mass market, not just luxury vehicles, which could help drive wide adoption of alternative fuel vehicles in a decade or less.
There's also Toyota (NYSE: TM), which recently launched the hydrogen powered Mirai on a limited basis. Toyota would argue that hydrogen is an even better source of energy than electricity EVs use because it's easier to fill your car with hydrogen.
Adding to the plans of Tesla Motors, Ford and Toyota, tech companies like Google (NASDAQ: GOOG) putting over a million miles on autonomously driven vehicles and you have a level of disruption to energy and transportation that we haven't seen in a century.
OPEC has to be worried that tech companies and automakers are going to develop new products that bypass oil to transport people, denting demand. Remember, when oil dropped from $100 to $35 per barrel it was because the market was oversupplied by about 1-2 million barrels per day, which is less than 3% of demand everyday. Oil prices are extremely sensitive to demand changes and OPEC can't afford to lose a significant number of customers to electric or hydrogen vehicles or we could see prices decline even further than they did in 2015.
OPEC is in trouble and it knows it
When you look at the macro trends above you begin to see that OPEC can't let oil jump to $100 per barrel. It risks allowing competitors like shale drillers to take share and it also kills demand for oil. In addition, it has to cash in on oil while it can because companies like Tesla, Ford, Toyota, and Google are building vehicle platforms that don't require oil as their base source of energy.
OPEC is stuck between a rock and a hard place, forcing some very difficult decisions for the oil cartel. At the end of the day, I think OPEC will let oil prices rise to $60-$80 per barrel in the next two years but it'll be careful not to let it rise high enough to spur too much new oil production. Longer term, I see new, cleaner technologies continuing to take share, slowly diminishing our need for oil. Add it up and the days of $100 oil are behind us. That's good news or bad news, depending on who you ask.
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The article Oil Prices: Why Oil May Never Hit $100 per Barrel Again originally appeared on Fool.com.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Travis Hoium owns shares of Ford and SunPower. The Motley Fool owns shares of and recommends Alphabet (C shares) and Tesla Motors. The Motley Fool recommends Ford. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
