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International oil prices have reached a six-month high after a devastating plunge, but Canada's energy sector is still bracing for what the newly elected NDP government in Alberta might bring. The TSX dropped as Canada's energy titans took a hit after the election, but global money managers, hedge funds and markets are still generally happy to reap a bit of good news about international oil prices. Canadian markets might be confused, but low oil prices will be the new normal – and it's not because of politics.

When prices fell by 50 per cent to $50 (U.S.) a barrel, analysts pointed to disruptive geopolitical forces and Saudi Arabia's refusal to decrease production. But political factors are distractions from the key underlying causes. Oil prices are going to remain low for a while, and like most things economic, it's all about supply and demand.

Since last September, when oil began its plunge, markets have been waiting for a price adjustment. But the current rise is not sustainable. Economic fundamentals and technical evolutions in energy production are likely to depress oil prices longer than first thought.

On the supply side, the crude oil industry is in for competition from new untapped sources, both non-renewable and renewable.

In non-renewables, all eyes are on hydraulic fracturing, or fracking, and whether the technology will be able to deliver on promises of revolutionizing the industry. Could fracking turn the United States, one of the world's largest oil importers, into an exporter? Optimism is rising. At one point, the average valuation of fracking production costs were in the range of $60 to $80 a barrel, leading some – perhaps even the Saudis – to believe that depressed prices would eventually undercut these producers out of the market.

However, it seems that as fracking techniques have become more efficient in recent years, the costs of production have steadily decreased. Moreover, firms that paid the initial high startup costs have continued to produce, despite the past year's price decline. As a result, it seems likely that fracking output is not about to nosedive.

So the coming year will be key for determining whether fracking costs can be kept low enough for new ventures to remain profitable in a low-price era. And there are already some interesting signals suggesting that we may see more exploration and development in non-renewable technologies – much to the chagrin of environmentalists.

In renewables, meanwhile, the global push for climate change policies and carbon pricing, plus technological advances allowing for a gradual lowering in solar, wind and geothermal costs, are all contributing to an expected increase of renewable options among our energy supplies.

In addition to more non-renewables and renewables on the grid, there has a diffusion of oil suppliers' power. Despite its apparent power and influence, the Organization of Petroleum Exporting Countries (OPEC) has less clout than ever before. Cartel members haven't been able to agree to price fixing like they did in their 1970s heyday; internal squabbling has been magnified by regional rivalries. Even if they could get their act together, the new influence that financial markets have over price determination is often overlooked as a source of power diffusion.

Indeed, international market speculators' confidence (or lack of it) is arguably a more likely factor than politics or Mideast turmoil in any price fluctuations.

OPEC's diminished role and relevance can also be attributed to the impressive output of producers from Russia, the United States, Canada, Mexico, Brazil and, soon, Israel. The majority of oil today is produced outside the cartel bloc, making OPEC less powerful than it once was.

On the demand side, an aging population in Europe, Latin America, North America, and Japan means less consumption and production of oil for transportation, heating and manufacturing.

Perhaps a decade ago, in more speculative times, we could have all pointed to India and especially China as the new giants of energy demand.

But with time, China's slowing economy and aging population will have lower supply needs. The country also has one of the world's largest untapped reserves of shale gas; if fracking technology improves and production costs become substantially lower, the extraction of these hard-to-reach resources may become another game-changer. And as Chinese citizens challenge their government to tackle their country's terrible pollution from coal-fired plants, the Communist Party will almost certainly move away from coal toward cleaner shale gas exploration.

We are entering a new era in the future of oil, one in which previously untapped sources seem poised to revolutionize the industry as we know it. So the current small rise in oil prices does not constitute a price readjustment. Lower prices are the new normal.

Dr. Bessma Momani is an associate professor at the Balsillie School of International Affairs at the University of Waterloo and senior fellow at the Centre for International Governance and Innovation.

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