The Wall Street Journal reprinted a piece this morning from BreakingViews.com about why oil at $100 just can’t last. I found the article, “Why $100 Oil Can’t Float” compelling and thought-provoking. Here are the top ten reasons why justifications for the price, like supply and the dollar, crumble under economics:

1. Supply above ground is abundant. The amount of oil in storage tanks around the world is near all-time highs — 4.2 billion barrels at the end of June in the industrialized countries of the Organization for Economic Cooperation and Development alone, according to the U.S. Energy Information Administration. Falling inventories in the U.S. have received a lot of attention, and the EIA does predict slightly lower stocks by year-end. But this has more to do with inventory management than a lack of supply.
2. Supply below ground is abundant. The world’s proven reserves are now at 1.4 trillion barrels, up 12% in the past 10 years, according to BP. That’s not even counting the estimated 1.7 trillion barrels of oil locked in Venezuela’s Orinoco tar sands. Combined, that comes to a century of production at the current rate.
3. Production is set to increase. Sustained high oil prices have encouraged drilling. There are 45% more oil rigs in service today than there were three years ago. New rigs are more productive than old ones and new technology is helping to squeeze more oil out of old fields.
4. The cost of production is much less than $100 a barrel. Even with oil-services costs soaring, Royal Dutch Shell’s lifting cost per barrel of oil equivalent in 2006 was about $9, according to energy research firm John S. Herold. Extracting oil costs Saudi Aramco, the Saudi Arabian producer, an estimated $4 to $5 a barrel. The full cost of new production — including both capital and operating-cost components — in the most challenging oil fields, for example in Canada’s oil sands, is perhaps $30 a barrel. Oil prices can fall heavily without making any of this production uneconomic.
5. Iranian exports aren’t likely to be cut. The U.S. is in practice unlikely to take military action against an adversary three times the size of Iraq. And with oil exports accounting for 50% of Iran’s gross domestic product and 90% of its hard-currency earnings, a self-imposed cut in exports would be self-destructive. In any event, the world has the equivalent of nearly three years of Iranian production in storage, according to research from Oppenheimer. This risk shouldn’t be a big factor in oil prices.
6. High prices are pulling back demand. Oil consumption in the U.S. fell by 1.3% in 2006 and world-wide demand grew a measly 0.6%, according to BP. World-wide, demand this year is expected to be flat compared with last year. Exxon Mobil cut its long-term forecast for oil-consumption growth this week.
7. High prices are forcing governments to cut subsidies. Iran is rationing gasoline, and last week China ordered a 10% increase in oil-product prices. That should curb demand growth, too.
8. Energy from oil is looking expensive compared with energy from gas. Oil by the barrel has usually traded at six to 10 times the price of natural gas (measured per million British thermal units). It is currently at 13 times.
9. The weak dollar is a poor excuse for high oil prices. Since Aug. 22, the dollar is down by only 8% against a basket of currencies while the oil price has risen by 40%.
10. Speculation is artificially boosting prices. A speculator needs to put down only $4 per barrel as margin to bet on the oil price in futures markets. The net volume of open crude-oil contracts held by financial players is up 50% since August, when the credit crunch made it harder to make leveraged bets in some other markets. This looks like short-term, hot money.

Yesterday, a Simon buddy of mine, Stan, shared with us the top-level idea of the Johari Window, a psychological model for human interaction and self-disclosure. (Joseph Luft and Harry Ingham the principal creators of the model in 1969, labeled their model the “Joe & Harry” or “Johari” Window.) I’ve obviously been under a rock, since I was able to find a wealth of information about the subject with a simple web search. (See references one, two, three, and four for more reading about the model.)

The model is commonly used for understanding better what it takes to be an effective leader through communication, feedback, and honest discourse, which is part of the core fundamentals they teach us at Simon, especially in Professor Schmidt’s class. The model employs a four-part figure to reflect the interaction of two sources of information - self and others. The squared field, representing the “interpersonal space,” is partitioned into four regions with each region representing particular information-processing elements that have significance for the quality of relationships.

The Public Arena is the portion of the total interpersonal space devoted to mutual understanding and shared information. This known by the self / known by others facet of the relationship is thought to control interpersonal productivity. The assumption is that productivity and interpersonal effectiveness are directly related to the amount of mutually-held information. Therefore, the larger the Public Arena becomes, the more rewarding, effective, and productive the relationship is apt to be.

One can significantly influence the size of the Public Arena in relating to others by the behavioral processes you choose to use in your relationships. To the extent that you make others aware of relevant information which you have and they do not, you enlarge the Public Arena in a downward direction reducing the Private [Arena]. The process employed toward this end has been called by Luft and Ingham the Exposure Process. It entails the open and candid expression of feelings and factual knowledge.

Yet it takes two to communicate and the other party must also expose in order for communication to be productive. Therefore, active solicitation by you of the information of others must also be employed. This process is known as Feedback Solicitation. As one solicates feedback, the Public Arena extends to the right reducing your Blindspot. The overall idea is to increase your Public Arena, and thus establish truly effective relationships by engaging in optimum Exposure and Feedback solicitating behaviors.