You’ve probably noticed that the
price of oil has gone up a little. Well, more than a little. It’s up about 40
percent for this year alone, enough to significantly affect business decisions
involving energy, logistics and products with petrochemical inputs. But should
we start to panic?
I don’t think so. And I would
strongly caution anyone working on a green business plan to justify things
based on a broad argument that doesn’t rely solely on the price of crude. If
you look at the price of oil over the long haul – say for the past century –
you see a jagged line (inflation adjusted), not a steadily rising slope. While
we’re clearly not going to see $50/barrel oil in the near term, it’s important
to remember that there are plenty of events that could cause the price to fall.
Here’s a review:
Geo-political conditions could
settle down. Right now, there are stability problems in Nigeria and Iraq,
and that’s enough to make people nervous about the world supply,. That
nervousness in itself causes prices to rise. But the political picture could
change. Nigeria seems to be calming down. The situation in Iraq seems to be
getting better. In short, things can, and do, change.
There could be another falling
out among the OPEC countries. This has happened before. While OPEC seems
like a brotherhood when seen from the outside, it’s more like an uncomfortable
marriage of convenience. Member countries have acted independently in the past,
selling more barrels than they agreed to sell, and it doesn’t take that many
extra barrels on the market to have an effect – not only on the price of crude
itself, but on the market for speculators as well.
U.S. oil production could
increase. Steps in this direction wouldn’t fix anything in 2008, but it
would have a positive long-term effect, and it’s increasingly a realistic
possibility. In the past, the idea of new oil drilling in America has been an
intensely divisive red/blue issue. But that’s changing, and many liberals are softening
their positions. One reason is that lower-income voters, a primarily Democratic
constituency, are the people who are most hurt by high oil prices. Another is
that the technology for containing the disruptive effects of oil drilling on
the environment has significantly improved.
Bush could release some of the
oil in the strategic oil reserve. This would have an immediate effect. In
fact, merely exchanging some of the “sweet” (low-sulfur) crude that’s
there for “sour” crude would help with gasoline prices.
The bottom line is, when you make
oil-price-driven decisions, make sure to take a long view.