OIL PRICES FALL, SOLAR GUYS SIGH

1 oil at 2.49

gasoline at $ 2.40 a gallon ? not there yet, but we will be soon. Enjoy the fun while it lasts

——– —- —-

As everybody with a car key knows, gasoline pdices have fallen in the Boston area by at least one third. Gallons that cost us about $ 3.70 last year now go for $ 2.50.

Those of us who drive, celebrate. Those of us who don’t, are missing the fun. Actually, it’s more than just fun. It’s a big deal. Oil is the world’s one vital, immediately fungible commodity, upon which a major part of all the world’s cash is spent and invested. Millions of people work in the oil industry; thoiusands more in natural gas extraction and delivery. It is indeed a big deal; and when the oil price shifts as enormously as it is now doing, big consequences ensue.

More about those consequences later. First I want to outline why the huge oil price drop is taking place. The answer is simple : oil supplies rarely disengage from demand by even one percent. Most oil transactions are cash deals in which delivery is immediate. No one in the entire chain of oil – to – market inventories much, because liquids bulk huge; there’s not much place to put them. Once extracted, oil moves ceaselessly from delivery to refinery refinery to terminal, terminal to dealer to customer.

Oil’s constant, super efficient movement from extraction to consumption has the same effect, when supply and demand shift, that a stalled car has on traffic on a freeway. It doesn’t take much of a ripple to upset the oil market — and thus its pricing.

This time, however, oil prices have fallen not because of a break in demand — nothing unusual has happened there — but because of over-supply. Saudi Arabia, which still controls about one-quarter of the world’s oil and dominates the OPEC cartel of oil-producing nations, has refused to cut back production even as US production of oil has reached its highest level in decades. (Fact : we’re now an oil exporter nation.)

Even as consumers now use more gasoline than they might have a year ago, over-supply has left much produced oil without a buyer except at cut-rate prices. So the question arises : why are the Saudis doing this ?

In part their decision is political : a 33 percent fall in crude prices has seriously hurt the economies of two major Saudi enemies, Iran and Russia. Not to mention Venezuela, whose economy, dodgy even with oil at $ 120 per barrel, has lost all of its clout (hello, Cuba) now that oil fetches varely $ 60 per barrel.

The Saudi decision also has an economic motive : fracking, as a method of oil extraction, has become so inexpensive that it has enabled Canada and the US — we invented the process — to produce oil as cheaply as, or more cheaply than, the Saudis can o by traditional drilling.

Our two nations, Canada and we, threaten to outflank the Saudis’ dominance of oil markets. The Saudis are fighting back, trying to downgrade oil prices to where it becomes unprofitable for us to extract by fracking. (“Fracking'”is short for hydraulic fracturing, a water-pressure method by which shale and tar sands are dissolved and the oil held within them extracted.)

The struggle going on around oil costs has given a huge boost to the economy, enabling consumers to spend much more on stuff other than gasoline and heating oil than last year, and this at a time when incomes are increasing nationwide. But the same struggle is causing major diusruption to alternative-energy initiatives. no sooner has the cost of producing solar power become competiive with fossil ful prices than fossil fuel prices have suddenl dropped big time.

Yet the big issues in fuel politics remain. Sio,me day they will become vital again : alternative fuel prices don’t have the sme up and down volatility as do oil and gas ; the millions of people who work in the oil and gas industry can’t readily be redeployed ; alternative energy doers not subject us to the vicissitudes of international politics ; carbon emissions are still a major world climtae impact; and the innovation necessary to create a nationwide alternaive-energy grid will, of itself, enormously boost and reshape the nation;s economy.

There’s every reason to want America to move to a fuel grid that isn’t oil or gas. And not only America. This is the world’s issue. The dislocation is going to be huge as it is : what happens to the millions who now owrk in oil and gas ? What becomes of the businesses — the transport, extraction, and refining businesses in particular, and the oil traders working world-wide — and of the huge billions of dollars that move through them ?

Right now we are enjoying a ton of fun driving cheaply and buying lots of other stuff that we had not expected to afford. I wonder what the next chapter in the long and dramatic epic of oil will tell of.

—- Mike Freedberg / Here and Sphere

Author: hereandsphere

Here and Sphere is an online journal of news, opinion, reviews, advice, & bits n' pieces of everything else - from HERE to SPHERE...... Co-founded by Michael Freedberg, a long-time Boston Phoenix journalist, and Heather Cornell, a South Coast Massachusetts columnist and editor.

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