What oil prices below $70 mean in the long run
You may think that high oil prices won’t happen ever again and that we can keep on relying on this fossil fuel. But beware : the Daily Green explains this is only temporary.
Indeed, even if speculation and demand in rich countries dropped, Asia still buys the same quantities and political unrest still looms in oil-producing countries.
Here goes the full article :
How quickly things change. In July, the price of light, sweet crude oil surged to $147 per barrel. The investment bank Goldman Sachs had projected two months earlier that the price could hit $200 per barrel in as little as six months.
(…) In the eternity of the last several weeks of economic turmoil, energy largely disappeared as the lead campaign issue. The price of oil has fallen by more than half. Gasoline prices have dropped below $2.50 per gallon across the nation’s heartland. OPEC’s barons of price rigging are holding an emergency meeting this week.
Can we cross oil overdependence off our enlarged list of things to worry about? Not a chance. Just as beginning investors are counseled to avoid obsessing over the short-term ups and downs of the stock market, our thinking about energy should not be pulled this way or that in response to price fluctuations.
In the long run, overdependence on oil is still a high-risk proposition, and carefully drawn measures to diversify our energy menu should remain a high priority. Here’s why:
A prolonged slump, with low demand and relatively slow prices, could set the table for high prices when the economy recovers. In the face of price volatility, oil producers uncertain whether projects will pay may cancel them, exacerbating supply-demand imbalances when demand surges again.
Moreover, big, easy oil fields are increasingly difficult to find and costly to produce. Asian demand for energy hasn’t gone away.
The geopolitical snares of oil dependence haven’t gone away either. The Middle East is still prone to violence and weighed down by misrule. The Niger River Delta is still a cauldron of unrest and sabotage. And Vladimir Putin is still a power-hungry jerk.
The brittleness of the oil market is a sign of an impending energy transition. We’ve gone through this before. In the 19th century, wood and whale oil gave way to coal and petroleum. In the mid-20th century, natural gas and nuclear largely muscled oil out of the power generation game.
What the nation’s energy economy will look like on the other side of economic turmoil and oil overdependence cannot be predicted precisely. It’s safe to say that the transition will take some time. Fossil fuels are deeply wired into the nation’s economy and there are no obvious magic arrows in the quiver.
The best way forward through economic uncertainty and energy transition is to use energy less wastefully.
As energy economist and geophysicist Peter Tertzakian wrote in his 2006 book, A Thousand Barrels a Second :
“Those of us who save money through conservation or efficiency, take advantage of new approaches, and weather the storm will be helping ourselves and our families. At the same time, we will be helping our country become more secure, economically stable, environmentally sound, and competitive — a healthier, more prosperous, more opportunity-rich place to be.”