Are We Over the Oil Hump? - Environment and Energy

30.07.2008

Are We Over the Oil Hump?

One of the emerging bit of conventional wisdom on the right, it seems, is that oil prices are now falling all because Republicans are simply talking about drilling for oil off shore. Oh, and also because President Bush repealed the executive order banning offshore drilling—even though the congressional ban is still in place (and even though it's clear that Oregon, Washington, and California aren't going to open up their coastal waters for oil exploration no matter what Congress does).

Anyway, Jad Mouawad's piece in The New York Times today neglects to mention this theory, but does try to get at some of the big reasons why oil has fallen more than $23 per barrel since July. And, again, it's the basic boring stuff: Demand has slipped faster than anyone thought possible—especially in the United States, where people have been cutting back on driving pretty dramatically—and with the U.S. economy still squishy, most traders think demand is going to skid down even further. Some experts also point to the diplomatic feelers the Bush administration is now putting out toward Iran, which may have helped "deflate some of the geopolitical risk premium that had been built into high oil prices."

I wouldn't venture a guess on where things go from here, and many analysts are sounding cautious. Another flare-up in the Middle East could, obviously, send oil prices right back up in the troposphere. Conversely, China, India, Brazil could start growing more sluggishly. One remarkable bit is how quickly driving in the United States has tapered off over the past year, even though many people don't have great transit options. (Technically, about 57 million households have both cars and access to public transportation, but that's "technically," and a bus that swings through the neighborhood on an irregular schedule isn't terribly useful.) It'd be swell to see what a concerted effort to promote public transit and other alternatives to fossil fuels could do—because, in the long run, the oil's certainly not getting any more plentiful.

--Bradford Plumer

Posted: Wednesday, July 30, 2008 3:59 PM with 5 comment(s)

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Robert Powell said:

The key is where it's been for over a half-century--in the Persian Gulf.

A reasonably stable Iraq making a deal with the majors to rehabilitate their infrastructure and bring new fields on line, combined with some kind of deal with Iran, and we're looking at another typical bust in the perennial boom-and-bust cycle that has characterized the oil industry since 1859.

We should certainly proceed to a much more diversified energy picture, but the situation in the Gulf seems likely to determine whether the transition is characterized by wars, anarchy, and economic collapse, or not.

All those Obamaniacs who buy his rap about the importance of Afghanistan, take note.

July 30, 2008 11:58 AM

dhauck said:

I've noticed the drop in U.S. oil usage with great surprise, because prior spikes have not led to great usage reductions, despite predictions that they would. So is $4/gal just the magic number, or is it that the economy as a whole has slowed down, and hence families don't have the spare cash for high gas costs that they did in prior years?

July 30, 2008 12:14 PM

mrtbob said:

Over time, oil will again rise and with it so will the economic uncertainties for higher gas prices. But there is still light at the end of the energy tunnel if we (voters) put the right decision makers into our government. The period of energy consumption we are presently in is only temporary, so get ready for a rough road ahead.

July 30, 2008 12:29 PM

ChanRobt said:

Oh, you gotta be a genius to figure out why the price of oil has fallen. DEMAND has fallen precipitously.

And, yes, the apparent groundswell pushing the country towards more oil exploration, more exploitation of shale, coal, tar sands, plus every other non fossil alternative as a way to make us independent of foreign energy-- yes looking serious about all these would affect the Futures markets and hence the price of a barrel.

July 31, 2008 1:09 PM

timothycat said:

I suspect that the traders have concluded that an Israeli attack on Iran is not imminent. The Israeli's only have another week or so to attack if they don't want to get in the way of the American election. An attack during the conventions would not go over very well with either the Dems or Republicans. Same thing for an attack during the actual campaign months August through November. I suspect prices will start to go up dramatically after the election.

July 31, 2008 2:26 PM