There is nothing remotely surprising about the sharp fall in oil prices over the last four months, except perhaps the timing. The fundamental forces driving prices lower (rising supply outside OPEC from shale and sluggish demand growth as result of conservation and substitution) have been clearly visible for at least two years.

Last year I wrote: “If the shale revolution can be sustained in the United States, and successfully exported to other countries, some combination of OPEC production cuts or lower oil prices to encourage demand and forestall more investment, will be inevitable by 2015-2016.” In 2012, I wrote: “The massive rise in prices means Saudi Arabia will face intense competition from shale.Compounding the problem, projected oil demand is now expected to grow much more slowly than a few years ago as a result of conservation measures.”

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