Eventually, prices will equalize a bit: As higher-cost production methods like fracking feel the pressure from low prices, supply will start to slow and prices will rise marginally. But I think we are likely to see sustained lower prices, in part because the technological transformations in the industry (which took the oil oligopoly by surprise) are here to stay, and are only going to become more efficient—more refined.
Of course, there’s always a catch—in this case, deflation. I spent last week in Davos, and one of the main concerns that we discussed was the risk of deflation, which was a key factor in the ECB’s important decision to begin a robust asset purchase program.
I would call lower oil prices “good deflation”—they’ll help reduce the costs of things that consumers are somewhat locked into paying for, like the gas for their cars or the heat in their homes. But technology, particularly the “sharing economy,” can also help drive more traditional deflation, as it causes significant changes in behavior for consumers and capital expenditures for businesses. I’ll be discussing that more in my next post.
The opinions expressed are current as of January 2015, and are subject to change. Reliance upon information in this article is at the sole discretion of the reader.
A version of this post first appeared on Larry’s LinkedIn Influencer page. For more from Larry, click here.