In the wake of this news regarding oil prices, Morris A. Adelman is a professor emeritus of economics at Massachutsetts Institute of Techonology and long has been one of America’s leading energy economists. In this article, Professor Adelman eviscerates the myth that humanity?s need for oil cannot be met and that a gap will soon emerge between demand and supply. The entire article is a must read during the current season of political demagoguery, and here are a few snippets to pique your interest:

There is not, and never has been, an oil crisis or gap. Oil reserves are not dwindling. The Middle East does not have and has never had any ?oil weapon.? How fast Russian oil output grows is of minor but real interest. How much goes to the United States or Europe or Japan ? or anywhere else, for that matter ? is of no interest because it has no effect on prices we pay nor on the security of supply.

The doomsday predictions have all proved false. In 2003, world oil production was 4,400 times greater than it was in Newberry?s day [Newberry, a geologist, predicted in 1875 that the world was running out of oil], but the price per unit was probably lower. Oil reserves and production even outside the Middle East are greater today than they were when Akins claimed the wolf was here.
World output of oil is up a quarter since [Jimmy] Carter?s ?drying up? pronouncement, but Middle East exports peaked in 1976?77. Despite all those facts, the predictions of doom keep on coming.

If the cost of finding and developing new reserves were increasing, the value per barrel of already-developed reserves would rise with it. Over the period 1982?2002, we found no sign of that. Think of it this way: Anyone could make a bet on rising inground values ? borrow money to buy and hold a barrel of oil for later sale. With ultimate reserves decreasing every year, the value of oil still in the ground should grow yearly. The investor?s gain on holding the oil should be at least enough to offset the borrowing cost plus risk. In fact, we find that holding the oil would draw a negative return even before allowing for risk. To sum up: There is no indication that non-opec oil is getting more expensive to find and develop. Statements about nonopec nations? ?dwindling reserves? are meaningless or wrong.

U.S. oil policies are based on fantasies not facts: gaps, shortages, and surpluses. Those ideas are at the core of the Carter legislation, and of the current Energy Bill. The Carter White House also believed what the current Bush White House believes ? that, in the face of all evidence, they are getting binding assurance of supply by opec, or by Saudi Arabia. That myth is part of the larger myth that the world is running out of oil.

Professor Adelman’s piece dovetails nicely with this Fred Singer article on the ill-conceived Nixon and Carter Administrations’ energy-related policies that were implemented in response to perceived shortages of oil.
Hat tip to Professor Kling over a EconLog for the link to Professor Adelman’s timely article.