With the benchmark Brent crude oil price remaining closer to the US$80 per barrel mark, it might be tempting to rustle up a couple of jerry cans and pump them full for the summer drive season.

However, it might also be worth your while to keep your finger off the trigger for now as hedge funds and other money managers have been selling off oil on concerns that OPEC will be unable to cut production enough to offset rising non-OPEC output and an increasingly pessimistic economic picture.

Why can’t OPEC cut production too far?

The various OPEC countries are by and large dependant on oil revenue to support their economies (or ARE their economy), so the ideal situation for them would be high oil prices combined with unrestrained output.

Real life isn’t quite that simple though and several factors have come together to ensure that the various OPEC countries have to balance output with price.

Too much output and the price comes down, reducing or destroying profit margins, while too little output and high prices runs the risk of demand destruction or losing customers to non-OPEC producers.

As it is, Saudi Aramco – Saudi Arabia’s state-owned oil producer – has been forecast to cut the price of its flagship Arab Light to Asia for the first time since June to compete with cheaper US and European barrels.

Long-term prospects

That said, it will be foolhardy to assume that we will continue to enjoy lower (not quite low) oil prices.

Barclays for instance still expects Brent crude to average about US$94/bbl in 2024 though this is admittedly about US$4 lower than its previous forecast while Goldman Sachs believes the benchmark will trade between US$70-100/bbl by June 2024.

Goldman Sachs also believes that short-term volatility will remain a part of the picture due to current “macroeconomic uncertainties and heightened geopolitical risks”.

Should the economic outlook turnaround, there’s a pretty good chance that it will lift oil prices as a more robust economy will likely result in increased oil demand.

This is offset by geopolitical risks brought about by the Israel-Hamas conflict and of course the ongoing Ukraine-Russia war.

Small modular nuclear reactors still a pipedream

Small modular reactors (SMR) have long been touted as the answer to meeting power demands for the future cleanly.

The Liberal party has certainly bet heavily on the technology as an alternative to renewable energy with Opposition leader Peter Dutton ramping up calls for the ban on nuclear power to be overturned and for SMRs to replace retired coal-fired power plants.

It sounds good in theory to have small nuclear reactors – each capable of producing some 300MW – constructed using factory built components to lower costs.

The problem is that no proper SMRs have ever been built and the North American project that was most likely to have kicked this ‘revolution’ off has collapsed after the customer withdrew from the deal.

With the Liberals more likely to cross the floor and vote Green then look to China or Russia for inspiration, this has in all likelihood scuttled the idea of building SMRs in Australia.

Not that the idea was a good one in the first place.

For starters, Australians are still largely opposed to the idea of nuclear energy. Even proponents will shy away from the idea if asked whether they will support such projects if they are located in their backyards.

Second is the cost. While traditional nuclear power plants are infamous for their costs, SMRs, rather than being as affordable as they were originally touted to be, will still likely cost in the billion dollar range if we are being generous.

The timeframe is also likely to be long enough that we will miss emissions targets that would otherwise have being met using a combination of renewables and energy storage.

All that is without taking into account Australia’s notorious ability to blow out both costs and timeframes for major infrastructure projects – Snowy Hydro 2.0, we are looking at you.

Whatever the case might be, the Australian nuclear power dream is likely to stay that, a dream.