This week’s Courier Herald column:
While most of us were focused on finishing off Thanksgiving dinner and/or watching Philadelphia beat Dallas last Thursday, members of OPEC were having a less joyous meeting. The cartel that has managed to control oil prices for roughly four decades seems to be admitting at least a short-term defeat.
The group was unable to reach an agreement to cut production in the wake of world supply increases. The result was a two-day slide of 10% in prices, with US Crude ending Black Friday at $66 per barrel. For comparison purposes, the price of Crude was trading over $100 per barrel in late June. Oil is now on sale at one-third off. Many analysts believe this is just the beginning of a long-term slide in prices.
This is first and foremost great news for the American consumer. One third less spending on a necessity will usually become money spent on other things. $60 fill-ups that are now $40 fill-ups leave $20 to be spent or invested elsewhere. Businesses that use a lot of oil and gasoline will also reap the benefits of lower prices. Eventually, their customers will as well.
Much of the price drop can be credited to America’s emerging shale oil industry. Domestic production is increasing quite rapidly. Places like North Dakota are now employment hotbeds. Perhaps as early as next year, the United States may out produce Saudi Arabia as the worlds largest oil producer.
The fall in crude prices presents a bit of a longer-term opportunity and challenge. Not all oil is extracted from the ground at the same cost. As such, if prices continue to fall, some ventures that were quite profitable this summer may be losing money by spring. The jobs that the oil industry has been producing are likely to level off, or even decline if the slide in prices becomes great enough.
The challenge for the US is not so much as to provide certainty for the new domestic producers, but price stability for the economy as a whole. Clearly lower prices are good for both consumers and businesses who use petroleum. But the ability to have some range of certainty for planning and investment purposes also aids in economic efficiency.
Every President since Nixon has pledged North American energy independence, yet none have laid out a comprehensive plan to achieve it. We today sit at amazing intersection of increased domestic production of oil and significant technological developments in both alternative energy sources and energy efficiency.
Voters tend to demand solutions to energy problems when prices are spiking. The celebration and relief when prices enter free-fall also too often quench any appetite for long-term solutions. Especially if these solutions would require changes in behavior or could tweak prices back up slightly.
Much of the inflated oil prices Americans have paid over the past decade has been described as a premium for risk. Too much of our oil has come from the Middle East, and we are all painfully aware of the hostilities that remain within the region.
We’re also aware that what comes down can quickly return upward, as was the case the last time prices were this low. It took only months and a few negative news cycles from oil producing countries to return prices above $100 barrel.
Republicans continue to struggle to find a message that reaches beyond their traditional base. Figuring out how to continue to expand North American energy production to self-sufficiency should become a cornerstone of their message.
This must extend beyond a “drill here, drill now” bumper sticker slogan, and should not stop with the eventual approval of the Keystone pipeline. Nuclear power should be included, as the demand for electric cars will continue to expand the need for supply. Alternative fuels including solar, wind, and bio-feedstocks must be included as technology allows for viable integration into our consumption base without permanent long-term subsidies. We must find a balance between our abundance of coal reserves and environmental responsibility.
There’s an old saying that goes “the time to fix the roof is when it’s not raining”. The problem with extending that to politics and policy is that voters only tend to demand fixes during bad weather.
Anyone under the age of 50, however, will have difficulty remembering any significant length of time when domestic oil prices and even our economy were not being adversely affected by the OPEC cartel. We’re now producing enough energy on our continent – with the technological capability to produce more and consume less – that energy independence is within reach.
Now is not the time to let up. Now is the time to fix this problem, once and for all.