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August 22, 2005
Crude Opinions
Are you wondering when--or if--the price of gasoline is going to ease back from its recent highs? You're not alone; that seems to be the question of the hour. But the truth is that there is absolutely no firm consensus on when, if, or how a substantial drop in crude prices might come about.
Yesterday's edition of The New York Times had an fascinating summary of the international oil situation, focusing on Saudi Arabia. The article discusses the competing estimates of various experts who, based on roughly the same set of evidence, have dramatically different views about how much oil the country can produce, and on what timetable.
Of course, virtually none of the Northwest's petroleum comes from the Middle East; most of it comes from Alaska and Alberta. But oil is what they call a "fungible commodity"--which means that it doesn't really matter where our oil actually comes from, since there's really just one big global oil market. At this point, the price of Alaskan crude moves bascially in lock-step with international trends, so in terms of the price we pay for oil, political turbulence in far-flung parts of the globe might as well be in our own backyard. That's the price we pay, apparently, for shackling our economy to a commodity of which we produce not a single drop.
Posted by ClarkWD | Permalink
Comments
"a commodity of which we produce not a single drop."
"the Northwest's petroleum ... comes from Alaska"
Can you explain this contradiction?
Posted by: TravisL | Aug 23, 2005 3:22:21 PM
Ha -- good question.
The Northwest as we define it includes only southeast Alaska (technically, it's the boundaries of the watersheds of the rivers that flow through the temperate rainforest of North America). Obviously, one could quibble about the appropriate boundaries of the Pacific Northwest, but I doubt any definition would include Alaska's North Slope--the Arctic--from whence comes our oil.
Posted by: Eric de Place | Aug 23, 2005 4:06:25 PM
Or, from a philosophical point of view, none of us produces a single drop of this limited commodity. Which is probably good, since this finiteness will, hopefully, help us avoid going the way of the dinosaurs from which it came!
Posted by: Michelle Parker | Aug 23, 2005 4:38:37 PM
Oddly enough, no, it had never occured to me that gas prices might drop back down again. I have been hearing for years about decreasing reserves, the end of the era of cheap oil, the need to switch to alternate fuels, etc., I have always assumed that gas prices will simply continue to rise forever, as they have done throughout my life. Isn't it a supply-and-demand thing? Why would gas prices ever come back down?
Posted by: Mars Saxman | Aug 24, 2005 12:32:59 PM
Mars -
Actually, gas prices hit all-time, inflation-adjusted lows just 6 years ago or so. Pump prices in the late 1990s were lower than in the early 1980s, and that wasn't even adjusted for inflation. Plus Amory Lovins of the Rocky Mountain Institute has a great graph that suggests that historical oil prices have been perfectly random -- adjusted for inflation, they haven't risen steadily, but instead have just bounced around.
That said -- I think you could be right. We may have hit a point at which demand growth outpaces supply growth. And we may also soon hit the all time peak of production. But still, many folks hope/believe that oil prices will come back down, either because high prices will stall economic growth and curtail demand, or because high prices will stimulate more production. As they say, only time will tell.
I don't know enough to make a public prediction -- at least, not on behalf of Northwest Environment Watch. But my private opinion -- bolstered by recent shifts in the futures market -- is that I need a more fuel efficient car.
Posted by: Clark Williams-Derry | Aug 25, 2005 10:56:08 AM
TravisL & Eric --
I also think I went to far on claim about "not a single drop." No oil is produced in Washington, Oregon, or Idaho. BC produces some; but it's mostly "outside our bioregion", ie, in the northeast corner of the province abutting Alberta. Having worked here for a while, I've started to think in terms (somewhat mythical) ecoregional boundaries, rather than political ones.
Posted by: Clark Williams-Derry | Aug 25, 2005 11:12:59 AM
At some point the current high prices will result in new capacity coming online, which should temper prices, at least for the short-term. A good example of this occurred in the 80's, when the price of oil dropped to $10 per barrel after the oil price shocks of the 70's.
At even $40 per barrel many alternative sources, such as tar-sands, natural gas to liquids, and oil shale become cost competitive and will result in more supply. By some estimates, if you take tar-sands into consideration, Canada has more oil reserves than Saudi Arabia, although those are not proven reserves.
The supply will not come online until the price of oil stays high for an extended period of time. Most oil companies refuse to make investments in production unless they can be profitable at $25 per barrel. That will probably change if oil stays above $50 for several years.
Posted by: Matt Leber | Aug 25, 2005 11:55:40 AM