Henry Ford’s Model T was in production for roughly 20 years, from 1908 to 1927. Using 1920 as the midpoint of this production cycle, we find that oil sold for about 3.50 per barrel, which adjusts to 34.00 in today’s dollars.
Oil prices were just as volatile in the first half of the 20th C. as they’ve become now, with a number of price collapses coming when new discoveries were made. Notable among these was the emergence of the Black Giant field in east Texas in 1930. This discovery kicked off the golden age of global oil exploration and discovery, and the bulk of the oil the world would find charged ahead from 1930 and peaked in the early 1960’s. Since that time, the world has continued to find new oil every year. But, all the discoveries are much smaller in size.
The world seems to be learning two things at once, in the midst of yet another collapse of the US auto industry. First, automobiles are a hangover technology from the 20th Century which forms not only the industrial base of many nations, but, is a huge source of demand for steel, rubber, and other base metals. To the extent this technology’s future is in question as a growth product then we have to wonder what will form the base of global industrialism. My answer is trains.
Second, the price signal given to the world from oil since 2002, in a context of flat global oil production, more than strongly indicates that oil at 45.00 dollars a barrel is not even remotely close to a sustainable price–unless a collapse in global industrialism maintains for some time to come.
Thus we arrive pretty easily at a conclusion many now suspect: growth and cheap oil are incompatible. And in 2008, oil at a nominal price of 45.00 dollars actually represents an inflation-adjusted price that is higher, but is not dramatically higher from some of the prices seen before World War II.