There they go again. It was so nice and quiet on the oil front for a short while. Had the price of oil held at $147 we would have been regaled endlessly with all the good reasons why it should go ever higher. Procrastinations came from far and wide and were trumpeted loudly for all to hear. Next stop $200/bbl by Goldman Sachs, or to $250 by Alexei Miller CEO of Gazprom (on June 10, 2008) and $500 by the "Old Reliable" of oil price excess, Matt Simmons (not to speak of vertiginous price moments by T. Boone Pickens along the way). But then watching the price fall from the undreamed of heights of $147/bbl to the dowdy mid-fifties and below seemed to have made the oil guys and gals tongue tied in disbelief. But not for long . This past week they came out with guns blazing.
Here, answering his call to duty was Jad Mouawad writing for the New York Times. A scribe who must be one the oil patch's favorite cheerleaders, and who during the entire oil price bubble never met an oil price rise he didn't like, could not support or wouldn't do double somersaults to rationalize away trying to make us feel better at the pump and not get too heated with the good old oil boys and their OPEC dancing partners. In an article this week he tried to light a fire under our collective angst ("Rising Fear of A Future Oil Shock," March 27), he cited extensively from a report fashioned by the Cambridge Research Associates (CERA), an oil consulting firm with deep and close ties to the oil industry. With their findings, splashed over the pages of the New York Times by Mouawad, we were thus initiated into the new oil patch gospel.
It goes like this: You see, when oil was veering toward $147 a barrel we were advised by Mouawad and the oil industry flacks that not only was the price of oil a reflection of true market dynamics, but watch out above. We are going ever higher was the general theme. You see "peak oil "was in the air fed us by the barrel by oil industry PR departments, the likes of the American Petroleum Institute and friendly scribes throughout the media. The received gospel then was that we are running out of oil. This all in the spirit of an updated version of Samuel Kier hawking his "Rock Oil" patent medicine back in 1855, when crude oil was still bubbling to the surface in Pennsylvania. "Hurry, before this wonderful product is depleted from nature's laboratory," was the tag line then and again at $147/bbl.
And then, poof! The price of oil goes down over 60% from heights never dreamed of before, and guess what? Well now we are told there is plenty of oil out there, but we poor folks in the oil patch just need to get higher prices to justify going after it. And then, as if on cue, the Wall Street Journal piles in with their take on the same issue ("Spending Slowdown Will Haunt Oil Prices," March 27). It goes on to give the usual high drama about the prospect of a surge in crude prices , because "falling oil prices have squeezed oil companies' finances and forced many to cut capital spending and postpone projects." Then it goes on to quote CERA: "A price collapse of this magnitude really registers on the Richter scale , and its impact on levels of future investment will be felt for years."
But wait, "price collapse of this magnitude." Really. Consider the following: In March of 1999, ten years ago, the spot price for crude as determined by the Energy Information Administration was less than $13 a barrel. Thus, the current level of $52/bbl reflects an increase of 300% (or multiplier of 4). What else in your day to day experience has gone up that steeply in the past 10 years? Think about it.
The Wall Street Journal reported that CERA in part hedged its dire predictions citing their uncertainty at the rate at which oil demand will recover. If it doesn't begin to rebound next year, as many predict, the oil market could face a "large surplus of production capacity for the next several years."
Certainly the most positive comment comes at the end:
"Government policies to counter climate change and increase energy efficiency could also drive down the West's appetite for oil."
It is encouraging that the new administration is saying and hopefully doing all that can be done to achieve that end. And with its success, so too the price of oil will be driven down, as will the oil industry's hegemony over our lives.
***
Certainly the administration has its hands full, but the rapaciousness of the oil industry
and its willful dependence on the OPEC cartel to push for ever higher market manipulated prices, it may well be time to consider the Norway Oil Trust solution for the development of oil and gas on public lands (please see "The Oil Industry is Driving Away With Our Future: The Norway Solution," April 24, 2006). Simply put, in Norway the nation's wealth of oil and gas resources is developed and under the overall management of a National Oil Trust (i.e. Petoro and Statoil) to the benefit of all Norwegians. It works, and all Norwegians are the beneficiaries.