Guest Column: Yes, Oil Prices Are Cyclical Amy Myers Jaffe is an energy consultant and the Wallace S. Wilson Fellow for Energy Policy Studies at Rice University. The latest round of briefing papers on oil published over the last week on Wall Street is a testament to how quickly things can change when it comes to oil prices. Less than a few months after Brent crude prices topped $125 a barrel, Wall Street is suddenly predicting a possible collapse in oil prices to $50 a barrel. The forecasts, which may or may not prove to be correct, reflect more than just a cloudy economic outlook for Europe. There appears to be a definitive shift brewing in long-range perceptions about future oil supplies. With the shale oil boom promising over one million barrels a day of new oil production within a year in the United States, analysts are coming out of the woodwork to embrace falling oil prices. The new word on the street when it comes to oil is "sell." Already, the long oil price, that is, futures prices going out past a year, has fallen to $85 a barrel, down from over $100 a barrel earlier this year. Citigroup Global Markets took the lead last week with predictions of a cyclical shift that could cause prices to slide in the long term to as low as $50 a barrel. In their latest publication, "Zeroing In On the Long-Term Oil Prices," Citi analysts state: "Signs are abounding that the escalation in upstream capital spending is bearing fruit, with a surge in discoveries and reserve bookings that is already being converted into new production, particularly in North America. "There are no reasons to believe the supply boom in Canada and the United States is about to end," they write. To the contrary, it appears likely to start spreading across the world. Citigroup points to a new peak in upstream capital expenditures and the likelihood of a further cost deflation in shale oil economics as potential indicators of a cyclical downturn. "Current shale oil economics are in the $50-to-$80-a-barrel range," the analysts write. But as technology continues to mature, there is the likelihood of further cost deflation. This week Credit Suisse is singing a similar song. "Critically different in the narrative around the current oil market view is a simply bearish view of global economic growth that combines with a positively sanguine view of supply," its analysts write. In the latest issue of its Oil Sense report, Credit Suisse also suggests a severe credit crunch from Europe, against the backdrop of cheaper shale oil prices, could deflate oil prices to $50 a barrel. Oswald Clint of Sanford Bernstein is hailing Russia's Bazhenov shale as a formation that will dwarf North Dakota's, and bloggers are noting that the state of California has enormous shale oil reserves of 24 billion barrels. Barclay's is more sanguine, expecting stabilization at recent lows below $100 for Brent crude but issuing a similar warning to those who might want to bet that oil prices are about to go back up. In the short term, oil prices may or may not gyrate in coming weeks in response to events in the Middle East. But the change from Wall Street's previous obsession with rising oil prices prompts me to say "I told you so" to friends and confidants from the Middle East who thought prices were bound to stay structurally high based on the expectation that the end of "easy oil" would force investors to shift to more costly oil plays. As in past decades, technology is increasingly upending fears of impending oil scarcity, causing the costs of unconventional oil and gas development to fall dramatically. Indeed, the technology costs of converting one form of hydrocarbon to another and the costs of providing alternative automotive engine technologies are also likely to fall. So I feel at peace with my original contention that, in the long run, oil prices are cyclical, and that high prices invite the creation of new technologies, ensuring that the upswing of the cycle is eventually followed by the downward slope. That is the lesson of $147 oil. It propelled shale oil technology and drilling more rapidly than anyone expected. And if you top off shale oil technology with the arrival of more fuel-efficient car technology, ditto on the possibility that oil prices will moderate over time. Experienced futures brokers like Andrew Lebow of Jeffries Bach agree: Shale is already taking the wind out of the sails of long-term oil futures prices. My point, however, is not that we can all breathe a sigh of relief. Wall Street oil price predictions can be notoriously inaccurate. And some analysts are arguing that shale's potential is being overblown. Still, that the herd can change its mind is a signal that the feeding frenzy in oil is losing force. There is definitely going to be more oil from shale, and our cars are going to need less of the stuff. Does that mean a major disruption of Middle East oil couldn't push us back to $147 oil? But it might mean that a major disruption of Middle East oil might be less punishing down the road.