Editorial: John McElroy on the burst of the oil bubble
Over on Autoblog, veteran auto writer and new contributor John McElroy provides an interesting take on gasoline prices and the potential for the bubble to burst. Looking at gasoline pump prices in real terms (factoring in inflation) as recently as the beginning of the current decade, they were at an all-time low. Even now, with oil hovering near $100 per barrel, the price is still barely up to the peaks of 1979-80 and during World War 1. McElroy's assessment is that the current spike, like the previous events over the past century, had more to do with political unrest and uncertainty than any actual technical supply/demand reasons. As a result, if the current period of uncertainty ends, the price could well drop back down again. Keep reading my assessment after the jump.
[Source: Autoblog]
There is certainly a possibility of oil prices plummeting again. It's a concern that's been raised by many analysts and executives both inside and outside the auto industry. Because of the long lead times and huge capital investment required to mass produce any new automotive technology, any uncertainty is dreaded. If you spend a few billion dollars developing batteries or fuel cells or anything else and gas prices go back to $1.50 (in real terms) all of that could be lost as the market shifts back to less efficient vehicles.
Even disregarding the perspective of the manufacturers, there are two other problems with the potential for oil prices to drop again. First is the environmental concern. Every major carmaker has now publicly acknowledged that climate change is happening and that their products are part of the problem and part of the solution. They are working feverishly to develop technology that will help reduce fuel consumption and emissions. They realize that if fuel prices rise, it's in their interest to build vehicles to address that problem. If their products can help reduce operating costs for their customers, that leaves more money in the customers pockets. That's money that can be spent on buying those new cars.
Finally, even if you buy into McElroy's premise or the environmental issue, there is the national security issue. It's simply foolish for such a large proportion of our economy to be so dependent on a resource that often comes from countries that are not so friendly or are simply unstable. Yes, Canada and Mexico are the biggest suppliers of oil to the U.S., but after that it doesn't look so good. Reducing petroleum consumption is just a wise thing to do in geopolitical terms.
So what does all of this mean? Maintaining high oil prices is actually probably in the United States' best interest. The U.S. Congress had an important opportunity to take part in this during the past week. The President and most of the Republicans in the Senate along with Democrat Mary Landrieu forced the removal of a tax provision in the energy bill. A big part of that was the repeal of $13 billion in tax credits to oil companies. If this had gone through, the increases would almost certainly have been passed along to consumers. But that probably isn't such a bad thing right now. What should probably happen is a tax on fossil fuels that would maintain at least a minimum price for gasoline in real terms.
As long as politicians remain in power who continue to support an endless war on an idea or tactic, the price of oil is likely to remain high. However, in this scenario the main financial benefit goes to oil producing countries and companies. If however, policy changes cause oil prices to drop and taxes keep the retail price up, the tax revenue could be used to help fund research into new technology. Alas, heading into a presidential election year, it's unlikely that anyone is will show the backbone to suggest anything approaching this sort of plan.
Reader Comments (Page 1 of 1)
Golden Boy 8:17AM (12/16/2007)
"As long as politicians remain in power who continue to support an endless war on an idea or tactic, the price of oil is likely to remain high."
Back to sleep...
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Dad 7:49PM (12/15/2007)
"As a result, if the current period of uncertainty ends, the price could well drop back down again"
This would kill the new resurgence of fuel economy.
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Domenick 11:52PM (12/15/2007)
I was also thinking a minimum gas price might be a good idea. If prices go lower consumption will surely increase and that's not in our national interests for both security and environmental reasons.
I imagine any extra tax revenue might go towards the deficit once someone in possession of a brain cell gets into the Whitehouse.
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TG 1:49AM (12/16/2007)
One needs to look no farther than this blog to understand the motives of Opec, ExxonMobile, Chevron and various bedmates.
This is milk the golden goose time for them.
With the fast growing glut of Ethanol and the coming wave of hybrids, [ Prius alone has passed one million sold], I think demand is way down.
Electric fleet delivery trucks in the UK and the EU, Compressed air vehicles in France and India.
Service fleets and municipalities using LNG here in North America.
The current Oil per barrel price is purely designed to hedge future losses.
In a free market it would likely be around $45 to compete with bio-fuels.
Rough times ahead for Putin, Chavez, Acmahdinejad and our province of Alberta. It takes huge amounts of natural gas to refine Oil Sands bitumen into refined oil.
The pollution is a disgrace too. It will not fly when flex fuels become cheap. = TG
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mike 9:43AM (12/16/2007)
Sorry, this guy is dead wrong.
Do you guys watch any TV about China? I've seen something recently about the prep for the Olympics, and Bejing's dirty air. They took a look at the Chinese highways. They look just like our's. They have the same type vehicle traffic, Large guzzler's, lots of them, Buick, BMW, and SUV knockoff's just a large as the US fleet.
One thing you could say about a "planned economy" was they wouldn't make this type of stupid decision. But, the auto fleet is "unplanned". There looks like there will be rapid growth in Chinese demand for gas for Years To Come. Unless They raise the taxes and price of gas.
Buying a Prius( Plug-in) looks smarter and smarter all the time. We are going to need the option of another source of power for transportation for decades.
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Mark Goldes 10:57AM (12/16/2007)
Let’s have a "Triple Play": Reduce Oil Prices and Dependence on Fossil Fuels, while Meeting the Growing Demand for Electric Power
The Cost of Oil
Oil prices may soon reach $100/barrel. In two years there will be one billion automotive vehicles worldwide. If current trends continue, by 2030 world oil supply, projected to be 70 Million barrels per day, will fall far short of the estimated daily demand. The projected shortfall of 40 Million barrels of oil per day will drive fuel costs far beyond tenable levels. The world will see more wars, such as the conflict in Iraq, unless a path is opened that can dramatically reduce demand for oil.
Fossil Fuels and Global Warming
The Intergovernmental Panel on Climate Change, that shared the 2007 Nobel Peace Prize with Al Gore, concluded that drastic shifts are happening much more rapidly than earlier predicted. Rajendra Pachauri, a scientist and economist who heads the IPCC has stated: “What we do in the next two to three years will determine our future. This is the defining moment.”
Greenland loses more ice each year than all the ice in the Alps said Konrad Steffen, a Greenland expert and advisor on abrupt climate change. "It is scary," said Steffen. Not only in Greenland, but in Antarctica and elsewhere there is massive melting of ice. “In 8 years nearly all Peru's glaciers will be gone due to global warming and its 27 million people will nearly all lack fresh water, with the likely result being: 'chaos, conflict and mass migration'. Each 1 degree Celsius global temperature rise deprives between 400 million and 1.7 billion people of sufficient water. “A total of 46 nations and 2.7 billion people are now at high risk of being overwhelmed by armed conflict and war because of climate change. A further 56 countries face political destabilization, affecting another 1.2 billion individuals.” (Observer UK 11-4-07). More than 180 nations have coastal areas in peril. Two-thirds have over 5 million people under threat of serious flooding. Included are cities such as New York, London, Miami, Shanghai and Tokyo.
The World’s Huge Appetite for Energy
Energy consumption is at the core of human existence. It virtually controls what we eat, how we live, where we go, how we are entertained, our health, knowledge, defense and exploration. The world's demand for energy is surging.
The International Energy Outlook 2006, by the U.S. Department of Energy, forecasts electricity use will grow by an average of 2 percent per year worldwide and almost twice as rapidly in the developing world. Robust economic growth in many developing nations is expected to boost demand for electricity for air conditioning, cooking, space and water heating, and refrigeration. Global energy consumption is projected to increase by 71% from 2003 to 2030. We need to sharply accelerate development of radically new, cost-effective, sustainable alternatives.
The Triple Play
A revolutionary new technology, GENIE™ (Generating Electricity by Nondestructive Interference of Energy) is being developed at Magnetic Power, Inc. (MPI).
MPI has dedicated more than 20 years of research and development into exploring breakthrough technologies. To reverse the trends discussed above, MPI envisions a technological revolution, developed commercially, that has limited impact on available planetary resources. GENIE is projected to be easy to manufacture and use, as well as inexpensive, thus capable of rapidly achieving global impact.
Based upon proprietary breakthrough discoveries in MPI's labs, GENIE generators are being designed to operate continuously, without fuel, extracting electricity by converting an energy source that exists everywhere in the universe. This process creates no pollution. The cost of electricity is estimated to be significantly less than any competing form of power generation, today or in the foreseeable future.
GENIE generators with no moving parts can be made in many of the world's electronics factories. Household units will produce power 24/7. Larger units will replace automobile engines. GENIE will eliminate any need for fuel to run a vehicle. It can also allow future cars to become income producing power plants when parked.
GENIE is a magnetic device. Nobel physicist Werner Heisenberg once stated: "We could utilize magnetism as an energy source". Hans Coler demonstrated a 6 Kilowatt, solid-state, magnetic "space-energy receiver" in Germany during 1937. It was destroyed by an Allied bomb during WWII. The invention was confirmed by British Intelligence after the War. However, at the time, there was no comprehension as to the source of the energy. Coler wrote: "These fundamental researches…have made the first real and large breach in the citadel of present scientific belief."
Advanced GENIE prototypes are currently being constructed by MPI. Lee Felsenstein, EE, evaluated an early proof-of-concept prototype. He felt it to be analogous to the first examples of the transistor, which eventually led to a Nobel Prize and the creation of Silicon Valley (and similar high-tech complexes throughout the world).
Within a year, a compact, 1,000 watt, self-sustaining, GENIE generator is a goal. A plug-in hybrid car, with a pair of these GENIE prototypes replacing any need to plug-in, will herald the beginning of an end to the need for fuel. Within two or three years, the first example of a larger GENIE generator, the size of a car’s fuel tank, might readily demonstrate the potential to replace any need for a fuel-burning engine.
The urgent need is for an emergency changeover, in less than a decade, from burning fuel, to widespread use of new sources of energy that eliminate the need for fossil fuels. The Triple Play made possible by GENIE makes that a practical goal. We applaud all efforts to replace oil and reduce greenhouse gases. However, nothing short of revolutionary new technology can act fast enough to save millions of lives.
Scientists may express skepticism, since the energy source is not yet widely understood. Acceptance will come when one sits on a desk in front of them and produces electricity. MPI is developing room heaters, Demonstration Devices and toys. Young people with open minds might teach their elders how they function. This Triple Play can and will accelerate, as rapidly as the required funding will allow.
www.magneticpowerinc.com
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Chris M 5:42PM (12/16/2007)
Sigh... The magnetic power fraud continues...
When Hans Coler demonstrated his first device to the British government, it produced mere millivolts - on the rare occasions it did anything at all. That trivial voltage (current wasn't measured) could have easily come from a thermocouple effect, or even from intercepted radio waves.
The 2nd Coler device was equally unsuccessful. Battery powered, it produced the amount of power one would expect from battery power run through lots of wire.
Now "Magnetic Power Inc." pretends that they will have a 1Kw fuelless generator running within a year. Problem is, they've been making the same promise for several years now, with zero results. No, that belongs in the same category as all the other "overunity zero point energy" crackpots and frauds.
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bioburner 6:54PM (12/16/2007)
The price of oil will continue to climb because of increased demand in the market place. China and India, to name only a few, are developing their economies and increasing the demand for oil/oil products. Its that simple supply/demand. The idea that oil prices are going to "fall" like a rock are ludecrious.
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Domenick 9:30PM (12/16/2007)
@MarkGoldes:
"Scientists may express skepticism,..." Yeah, scientists and anyone with a middle school education. Since you already had your 2 minutes of blog fame (http://www.autobloggreen.com/2007/11/24/magnetic-power-inc-s-genie-technology-is-supposed-to-do-eight-g/)
Why not get back to us when you have a working prototype. And please don't spam the comments section. Thank you.
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GreyFlcn 1:03AM (12/17/2007)
I'll just toss my hat in and say that I trust McElroy's analysis just as much as this magnetic "free" energy guy.
Oil may go down to $80 a barrel.
But the concept of it going down to $30 a barrel is rather silly.
The only possible means of that happening is if we start making vast amounts of oil from sources which are much dirtier than light sweet crude.
While plausible, thats certainly not something to look forward to.
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TG 12:56AM (12/17/2007)
Bioburner, you said,
* *China and India, to name only a few, are developing their economies and increasing the demand for oil/oil products. Its that simple supply/demand. The idea that oil prices are going to "fall" like a rock are ludecrious. * *
Not like a rock certainly, but oil prices should fall over time if you consider that China has 300 or so dealer / manufacturers of electric bikes and motorcycles.
China has the governmental *clout* to phase in alternate fuels and battery/fuel-cell and compressed-air truck and auto drive modes more quickly than a free democracy has.
No need to re-list all the millions of hybrids LNG, Ethanol, compressed-air and EVs like the GM busses running in 56 cities using Millions fewer gallons of diesel and gas.
Tata motors of India are putting out compressed air vehicles, some of which are running as taxis in Paris France.
And you are suggesting none of this has a downward pressure on oil prices?
The Brookings Institute seems not to agree with you.
Do you have any Reliable links that back up your position that Oil prices will not drop?
= TG
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Charles S 12:39PM (12/17/2007)
"And you are suggesting none of this has a downward pressure on oil prices?"
I was going to stay away from this till I read the comments about how China and India will adopt such fantastic alt-fuel vehicles and fuel consumption will miraculously go down.
First, let's talk about fuel usage comparisons. For every Hummer sold, it easily cancels all the savings of any two hybrids. No amount of e-bikes, air-cars, or future alt-fuel technology will be able to counter the surge in sales of petro-powered cars in the next decade.
The only foreseeable way to reduce consumption right now is either an economic meltdown, a natural disaster (Katrina helped reduced US consumption for a few months) or a disease pandemic that will wipe out a percentage of the population.
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mike 6:01PM (12/17/2007)
Charles S,
You sir, are correct. But, let's not underestimate the actual gluttony of the Hummer. Sure, if you are dainty with the accelerator you can displace just two hybrids. But, the wack-jobs who drive these and other high-powered-ultra-guzzlers have big heavy feet. Floor one of these massive FAT-LADIES's of the road and it easily starts getting 2 mpg, cancelling out 10 hybrids.
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