Cheap Gas = Death of Green?

Caterpillar International and Toyota both brought bad news today. Oil prices are off 70% from their $147 peak in July. Eight months ago, any yegg with the ability to execute a financial transaction was a genius, but the bubble that burst in Q4 was the result of 8 years of Bush economic policy that can be summed up thus: reckless deregulation. One would think we learned a lesson these past months, but of late that old Bush recklessness has some pundits saying cheap gas will be the death of alternative energy.

We don't hear much about the precipitous fall of crude prices in connection with conspiracy theory and popular revolt. It's a pity. What we hear is the usual pabulum that a weak economy means less demand. Less demand means decreased production which means the manufacturing sector requires less in the way of non-renewable energy, and the rest is copper-bottomed supply-and-demand economics. On a macroeconomical level this is undeniable truth, but this truth obtunds what might otherwise seem a lot like Bush-sponsored price gouging on the part of Big Oil this past summer. How else can one explain a 70% decrease in cost? Of course there are many other ways to explain it, but it is the extremes I am questionining here, not the gestalt.

We're hearing a lot about the connection between weak gas prices and weaker green technology. The connection is more concrete with each passing day, and yet the reality here is that our shared future of energy independence is being held hostage by a bunch of half-wit Wall Street suits with attention deficit disorder -- the sort of dolts who are probably this very moment in a Cadillac showroom shopping for an Escalade because a gallon of gas costs about the same as a gallon of water.

Does anyone seriously think that gasoline prices are going to hold at a buck and change? Let's face it my dear Shlubbos of the Economic Binge, as soon as we get around the sharp-edged threat of deflation (if we do) these prices are going to shoot up again. The planet is still running out of oil. Remember peak oil? What happens then?

While pundits talk about investment dollars mouse-tailing along the moulding of economic decline, there is a shortsighted feature to the conversation that makes me want to scream. Yes, there are people on the business side of life who are truly capable of being in the moment (no matter how much that moment is characterized by panic and disorder) to fill their pockets at the expense of everyone and everything else. There are bad people out there who need to be cornered by a watchdog 24/7. Bush was not much for watchdogs, and we're paying for that now, but to look at this easy breath coming out of the dying beast of our oil economy and to say because of it that we don't need to invest in green energy is 100% ant-and-grasshopper insanity.

T. Boone Pickens of BP Capital Management was on MSNBC's Morning Joe today and he stated a great case for why green energy is the place for whatever excess cash you might have lying around. Remember those shares of Microsoft you bought back in the day of rotary phones? Pickens ought to know a good longterm investment, right? Check out the video, and remember, while you're hoarding those gold coins, to throw a little cash at green technology.

Follow Beau Friedlander on Twitter: www.twitter.com/BeauFriedlander

Comments

[valentinemichaelsmith]

Barack Obama has a chance to employ a little Shock Doctrine for progressives. He and the democrats in congress should pass a $1 - $1.25 per gallon tax on gasoline immediately.
He could say it's to pay for the cost of the bailout . It would offset the huge deficit next year and could be used for the stimulus package . It could be used in later years to build infastructure and promote alternative fuel r&d . It would also help to keep the American consumer from backsliding into more gas guzzling autos . There could even be a smaller tax on desel fuel .50 -.75 $ . Its time we got back to using the rails anyway.
The beauty of this is we all were paying 4.00 a gallon just a few months ago and to have gas raise to 2.75 will be an easy pill to swallow ... And if it made a few re-pub heads explode ( limbaugh, beck, hannity ) , that's just a bonus .

[ImmanuelGoldstein]

Let me see, it's a conspiracy when the price goes up and it's a conspiracy when the price goes down. Beam me up Scotty, no sign of intelligent life on this planet.....

[jsarets]

The oil market is buffeted back and forth by clashing expectations. The expectation of increased scarcity drives oil futures upward. The expectation of industrial decline drives oil future downward.

The bulls envision a future of continued reliance on oil, with insatiable demand chasing dwindling reserves at high prices. The bears envision a future where businesses that depend on oil simply can't secure financing from weary investors, generating a widespread lack of appetite for the strategic risk involved.

Simply put, if the global financial industry thinks that most Chinese people should drive cars, then oil prices will soar, but if banks stop funding ventures whose future prospects ride on whims of oil speculators, then oil prices may stay moderate yet volatile for some time.

[Kache]

Pickens is absolutely right, and Beau Friedlander is absolutely wrong.

Now is a the right time to invest in green tech for the reason Pickens says. We will go green, and a dollar invested today will put the grandkids through an ivy league college and then some.

But oil prices are not going back up very far. The 150/bl level had nothing to do with supply and demand of oil. We did not suddenly see a tripling of demand or a 2/3 drop in supply that tripled the price of oil in a two year period. Nor did we see demand fall 2/3 or supply triple to bring it back down. Nor was it a Big Oil conspiracy, the profits of the big oil companies, big as they were, wouldn't buy a week of New Jersey's consumption.

The cause of the 150/bl price was supply and demand of capital dumped into the trading market. It didn't just hit oil, it hit steel, rice, corn, and wheat. -continued-

[Kache]

All of which jumped 300% in unison as capital fled the housing bubble, then fell back in unison as the entire economy imploded and the capital rushed to the safety of US Treasury notes, bringing their yield to near zero.

Oil prices are not going to go back up to those levels because that level had nothing to do with oil. During that rise in oil prices oil companies concluded that Cuba's new offshore reserves equal Mexico's entire reserve and Brazil's new offshore reserves equal Saudi Arabia's. Sadly, we're not anywhere near peak oil yet. Throw in Venezuela's tar sands (which begin coming online next year) and we have 300 years at current consumption levels within easy grasp.

We will not go green because oil is running out or because oil will be too expensive. Praying for either is a sure way to kill green. If we go green it will be because we make the investments even more attractive than Pickens sees them. Pickins is a smart investor, we need to attract the idiots too. That's going to require creative investment channels, methods that attract investment for 5 or 10 year terms, not day traders, with guaranteed minimum rates of return.

[max08]

Kache, what an intelligent post!

[PlugINCarsRule]

We have to look at "the big picture." Our days of tunnel vision need to cease. Our nation better wake up and smell the coffee. With all our bail outs along with the 168 billion economic stimulus package, that btw did nothing for our economy it is hard to understand why our government can't see the need to bail us out of our dependence on foreign oil. The high cost of fuel this past year seriously damaged our economy and society. Meanwhile, while we are busy doing the Happy Dance around the lower prices at the pumps, OPEC is planning to cut production to drive prices back up to between 75-100. per barrel. Why don't we invest in America's Energy Independence. It would cost the equivalent of 60 cents per gallon to charge and drive. . Why not invest some of these millions in getting some of these projects set up? Create clean cheap energy, badly needed new green collar jobs and reduce our dependence on foreign oil. What more of a win-win situation could there be? Now there is talk of another stimulus pkg. I just read a fascinating book by Jeff Wilson called The Manhattan Project of 2009 Energy Independence NOW. We need to look at the "big picture" This book Is the big picture. www.themanhattanprojectof2009.com

[phasechange]

What makes you think you can trust Pickens any more than you can trust any other energy marketer? Perhaps you shouldn't trust the Hubbard curve and the peak oil illusion either, another product of the oil industry. The diamond cartel could learn a thing or two from OPEC. The American people need a good trust buster more than they need a global warming czar.

Since low energy prices and ready supply are fundamental inputs for the economic health of our economy and country and we don't want to create further dislocations and volatility through ill-considered investments in inefficient energy systems, a gas tax should work pretty well right now to adjust the price/demand curve and help rein in OPEC's leverage. That will provide a key incentive for more efficient cars and trucks. The rest of the green stuff being proposed is probably OK and not too wasteful, but let's keep our eye on the ball - countering manipulated local demand and controlled international distribution.