For the past several months crude oil prices have been difficult to understand. The price fluctuations have been extreme. While moving from a high of about $147.00 a barrel in July 2008, to a recent low of just under $32.00 a barrel, crude oil prices experienced gut wrenching daily volatility. To say that the market have been unusually volatile is an understatement.
There is little hope of near term price stability in crude oil markets. The worldwide financial market meltdown has contributed to a slow down in demand as economic activity decreases. This slow down in demand is offset by a continued decline of crude oil production at the world’s major oil fields. The long term growth in oil products demand in high growth rate countries like China, India, and Brazil, will keep supply and demand closely balanced. Even in the US the economic slowdown has only marginally decreased the consumption of crude oil and refined products. This will keep crude oil markets extremely volatile as small changes in supply will have a large effect on price.
Oil exploration and production projects have been cancelled or postponed due to current relatively low crude oil prices. Interest in alternative energy projects have decreased along with the fall in the price of oil. These events are setting the stage for another price explosion within the next couple of years.
There is little hope that at any time in the foreseeable future any combination of alternative energy sources will replace the dependence of the developed world upon oil as the prime energy resource. While American politicians talk of America becoming imported oil independent within ten years that goal is all but impossible to achieve.
Without ample low priced crude oil supplies there is little realistic hope of restoring the world economy to what it was prior to the run up in energy prices. The United States built a world leading powerful economy on the back of cheap energy supplies, especially crude oil. Crude oil is the raw material input for so many products, like gasoline, jet fuel, and plastics, that scarcity and high prices will lead to a complete transformation of our world.
America is not well prepared for the transformation that will soon come. The age of cheap easily accessed crude oil supplies is nearly at an end. Even the current low price due to the worldwide deleveraging of debt and the resultant financial meltdown is bad news for the American economy.
While low crude oil prices are generally welcomed by the consumer an unhappy fact is at low prices the exploration and drilling of new crude oil fields are delayed or cancelled. In addition, alternative energy development slows as with a low price for crude oil alternative energy resources are not price competitive. And worse of all the need for energy conservation is soon forgotten as the public people thinks that they have somehow dodged a bullet and that it will not be fired at them again.
Present low prices for crude oil are setting the stage for the next price bubble for this finite resource. US government measures will try to sustain the unsustainable and divert declining financial resources into trying to prop up the American automotive and suburb centered cheap energy based consumer economy. That is, resources will be wasted in trying to restore the past way of living when an entirely new model will be needed to survive and prosper in an energy starved world.
Trillions of dollars that the US no longer has will be wasted in trying to do business as usual. We are basically betting our future on being able to keep crude oil prices at yesterday’s price level and availability. This is a risky bet that we can not win as within five years peak oil becomes an unpleasant fact of life and oil prices move to new highs. The US must do its best to adjust to a world of scarce oil resources and create new opportunities out of the energy challenge or living standards will drastically decline.
I disagree…I think that the last two years of high prices were the "swan song" for oil producers. Manufacturers are selling cars now (Ford Fiesta Econetic) that get 65 mpg from diesel. The plugin Volt gets 100 mpg. That's a five fold increase in efficiency from a 20mpg regular car. And that doesn't mention the fuel cell cars run on hydrogen, which can be produced from wind and solar.
No, oil is on its way out except for plastics and manufactured goods that it is well suited to produce. But merely burning it in ICE engines…no, not much longer…
I agree. It is very hard to predict if the price of crude is going up or going down the next day. I just hope that America survives and I hope that President Obama will be able to manage whatever happens to the USA happens to the rest of the world. Everybody is so dependent on the financial status of the USA.
This is why energy independence is such an attractive alternative. With energy independence their will be competition within our own nation for low prices for alternative energy and alternative fuels and we won't have to rely on hostile nations for our addiction to crude oil.
Since you posted this in January 2009, almost a year later the barrel of oil has more than doubled as it is into the $70 range. A lot of people say the price won't spike again, but I say why not? As long as the addiction to oil continues we have no control over the oil pipelines and profit takers along the way.
Oil is going to do what oil is going to do. Hopefully this is a wakeup call to take action and develop alternatives. The global warming deniers are trying to slow things down so that they can take their oil and coal profits now and stretch out profits as long as possible. But, this is only a stall tactic that cannot outlast the inevitability of alternative fuels.
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