Quantcast
Environmental News for a Healthier Planet and Life

Help Support EcoWatch

10 Things You Need to Know About Oil Prices

Energy
10 Things You Need to Know About Oil Prices

Panicking finance ministers. Squabbling OPEC. Slumping stock markets. Cancelled oil projects. Speculators rushing out of energy investments.

Here we sit, inundated with gloomy but indecipherable news on the economy and energy. Perched on the cliff of a slumping global economy, the price of oil slipping down from obscene $100+ levels, the media offers massively contradictory explanations.

Do we have too much oil or too little? Is cheaper oil good or bad for the economy? Will U.S. oil production leave us a major exporter or will North American drilling rigs shut down as oil prices fall? Is Saudi Arabia’s preference for expensive oil prevailing or is it Iran in the driver’s seat seeking exorbitantly costly crude?

The solution—and the only solution—is to break oil’s monopoly. Replacing it as a transportation fuel faster than the global economy grows, with efficient vehicles, electrification, biofuels and road to rail enables rapid growth accompanied by steadily lower oil (and fuel) costs.

We should remember we’ve been here, more scarily, before. The collapse of soaring oil prices signaled the beginning of the 2008 Great Recession. This milder repeat performance is not so confusing if we look at the basics—and remember that what counts about oil is not where it is produced, or exactly how much we need, but its price.

Ten things to remember about the price of oil

1. The price for all 93 mbd (million barrels of oil a day) the world consumes are set by the cost of producing the final, most expensive marginal barrels—currently from tar sands and deep ocean drilling. That price has fallen from $110 to $90 in the last year. It’s still sky-high--triple what it was a decade ago

2. Most global oil costs much, much less than $90 to pump. Half, mostly in Russia and OPEC, cost $40 or less. Another third, conventional oil around the world and shale oil in the U.S., costs $65 or less. Only the final 10 percent requires $75 and up.

3. This gap—high consumer prices for mostly low cost oil—transfers enormous wealth from the U.S., China and Europe to the governments of Russia and OPEC. These “petroleum rents” equal 3 percent of global GDP—$2.2 trillion. They drag down the world economy as much as shutting down Great Britain. (China spends most of its huge trade surplus with the US importing oil. That’s a big reason its growth has slowed.)

4. Oil is a little cheaper because

  • U.S. shale oil at $65/bbl (barrel) is reducing the need for $110 tar sands and deep ocean crude. (3.6 mbd)
  • U.S. fuel efficiency improvements (less than $40 bbl) replaced another 3.4 mbd of oil.
  • Weak economies in Europe reduce demand for oil by a final 0.2 mbd.

5. Oil is still very expensive ($90) because

  • Politics and violence keep about 3 mbd of low cost OPEC oil off the market.
  • Emerging markets are still using more oil every year. (1.3 mbd)
  • Most of the new oil found by Exxon, etc.—in Canada, the Caspian, the Arctic and off-shore—costs more than $90/barrel.  High cost crude, even lots of it, doesn’t come to market as cheap gasoline.

6. In 2013 U.S. consumers spent more on gasoline and other petroleum products than ever before—even as U.S. oil production grew substantially. High price trumps lower volume.

7. A global slow down—or worse recession—will temporarily drive oil prices down. That stalls investment in high priced projects in tar sands, Arctic and ultra-deep oceans.

8. But when growth resumes—without equivalent investment in clean transport—crude oil will spike again.  Industry will resume investing in expensive new exploration. But once again the growing oil tax on consumers will crush prosperity. Oil prices increase whenever the global economy grows faster than alternatives replace petroleum.

9. Worse, oil companies are not financing the search for new but unaffordable oil fields from their profits—they use those use to pump up their stock. (83 percent in the case of Exxon). Instead, they are borrowing from banks and other investors, putting the entire world economy at risk from an overleveraged oil and gas sector.

10. The core dilemma is that there is a surplus of $100 oil, but consumers cannot afford it. Prosperity requires $60-70 fuel. There is a lot of oil in that price range—but not quite enough to sustain global growth. The world economy is caught in a “volatility trap” between insufficient if affordable conventional oil and abundant but unaffordable extreme crude

The solution—and the only solution—is to break oil’s monopoly. Replacing it as a transportation fuel faster than the global economy grows, with efficient vehicles, electrification, biofuels and road to rail enables rapid growth accompanied by steadily lower oil (and fuel) costs. Our need for expensive crude will fade away. (Remember how much long distance telephone calls cost when Ma Bell had a monopoly. Oil’s transportation monopoly works the same way. We can have cheap transportation—only if oil faces competition).

The terrific news is that substitutes for oil cost less, less than last year’s $110, but also less than the new $90 benchmark. Goldman Sachs estimates that methanol, CNG either fossil or bio-sourced and electric cars are all cheaper than gasoline or diesel powered cars to buy and operate:

So the bottom line is that global energy consumers and their governments face a major choice: they can allow oil to retain its monopoly as a transportation energy source, even though cleaner options like electricity or rail are cheaper. We’ve tried that since oil prices began to rise in 2003, and we know where it leads. Global economic growth drives up oil prices, but provides no alternatives. Importing economies are drained of hundreds of billions of dollars. Eventually oil prices stall economic growth. The cycle begins again.

Or we can do for transportation what we did for telecommunications. Break the monopoly, invest in innovation—and as it happens, start moving beyond the fossil fuel that now looms as the biggest threat to climate security—oil. Cheap fuel will be good for the climate.

YOU MIGHT ALSO LIKE

To Change Everything We Need Everyone

We Can Transition to 100% Renewable Energy Starting Today

Solar and Wind Outshine Fossil Fuels

Eating lots of fruits and vegetables will boost the immune system. Stevens Fremont / The Image Bank / Getty Images

By Grayson Jaggers

The connection between the pandemic and our dietary habits is undeniable. The stress of isolation coupled with a struggling economy has caused many of us to seek comfort with our old friends: Big Mac, Tom Collins, Ben and Jerry. But overindulging in this kind of food and drink might not just be affecting your waistline, but could potentially put you at greater risk of illness by hindering your immune system.

Read More Show Less

EcoWatch Daily Newsletter

A graphic shows how Rhoel Dinglasan's smartphone-based saliva test works. University of Florida

As the world continues to navigate the line between reopening and maintaining safety protocols to slow the spread of the coronavirus, rapid and accurate diagnostic screening remains critical to control the outbreak. New mobile-phone-based, self-administered COVID-19 tests being developed independently around the world could be a key breakthrough in making testing more widely available, especially in developing nations.

Read More Show Less

Trending

A meteorologist monitors weather in NOAA's Center for Weather and Climate Prediction on July 2, 2013 in Riverdale, Maryland. Mark Wilson / Getty Images

The Trump White House is now set to appoint two climate deniers to the National Oceanic and Atmospheric Administration (NOAA) in one month.

Read More Show Less
A plastic bag caught in a tree in New Jersey's Palisades Park. James Leynse / Stone / Getty Images

New Jersey is one step closer to passing what environmental advocates say is the strongest anti-plastic legislation in the nation.

Read More Show Less

Did you know that nearly 30% of adults do, or will, suffer from a sleep condition at some point in their life? Anyone who has experienced disruptions in their sleep is familiar with the havoc that it can wreak on your body and mind. Lack of sleep, for one, can lead to anxiety and lethargy in the short-term. In the long-term, sleep deprivation can lead to obesity, diabetes, and cardiovascular disease.

Fortunately, there are proven natural supplements that can reduce insomnia and improve quality sleep for the better. CBD oil, in particular, has been scientifically proven to promote relaxing and fulfilling sleep. Best of all, CBD is non-addictive, widely available, and affordable for just about everyone to enjoy. For these very reasons, we have put together a comprehensive guide on the best CBD oil for sleep. Our goal is to provide objective, transparent information about CBD products so you are an informed buyer.

Read More Show Less

Support Ecowatch