The candidates don’t have workable plans and things will only get worse
The price of oil is not going down. Oil is trading at the highest levels in a decade, just months after OPEC’s grandiose announcement that it would increase its quota by 2 million barrels a day.
Expect oil to flirt with $50, creeping up to that level next winter, once OPEC’s impotence becomes apparent. There should be no illusions after the past few years. The oil cartel has been rendered virtually powerless to affect oil prices in a big way, and its influence will be further reduced as the world continues its transition toward natural gas and coal gasification.
Several Organization of Petroleum Exporting Countries can barely meet their quotas; others, such as Venezuela, are way off and getting worse.
High oil prices, which may prompt the moms and pops of West Texas and Oklahoma to produce more oil, do not necessarily mean the same in OPEC countries where corruption is endemic and revenues are funneled to support social welfare programs that bolster the reigning governments’ fortunes.
Tens of billions of dollars of re-investment in exploration and production and infrastructure would be required just to sustain current OPEC production levels; these investments, if they happen at all, will be obvious to everyone. But they are not happening now and are not a priority of most OPEC governments. The infrastructure in almost all OPEC countries is woefully outdated and obsolete, a process that dates back 25 years and has accelerated dramatically since 2000.
Social and political strife in Venezuela and Nigeria, the ongoing grind in Russia, not to mention how far awry Iraq has gone (didn’t we go there for the oil?) all bode for a problematic future for oil prices, markets and oil supply.
And this is not the worst of it.
The price of oil will climb to $50 overnight if a terrorist attack in Saudi Arabia threatens oil production in a big way. Make no mistake: Islamist terrorists know the impact of such an attack.
If most people think that there is a high likelihood of a 9/11-type attack to hit the United States, they should be certain that the terrorists are targeting Saudi Arabia’s oil production.
It is only logical. Saudi oil is the only thing that the West wants from that country and the only thing that sustains the current Saudi regime, so hated by the terrorists.
Even without such drama, once oil surpassed the psychological $40 barrier with barely more than a shrug by oil producers or consumers, the stage was easily set for another $10 price hike.
Without a sharp change in the consuming habits of the American public or the exploration and production spending of the major oil companies, there is little reason for oil prices to subside, even after the superficial factors that many analysts blamed for the price hike subside or go away.
The price of oil is affected by long-term factors, one of which is the equilibrium between supply and demand. A trend that started at least four years ago is now tilted toward supply shortages. This will not go away, no matter what.
True equilibrium pricing for new global oil exports is now nearing $30 a barrel.
The nation must recognize this. If there is one real shortcoming of the Bush administration, and one that history will not look too kindly upon (remember this was supposed to be the “energy administration”) it is that it has not yet passed an energy plan.
Nor has it been able to articulate to the American people the importance that energy and energy abundance have on the well-being of the country and the lifestyle we enjoy. Transition to other energy sources, primarily natural gas and coal-fed zero-emission energy plants, should be the highest of priorities, but little has been done.
John Kerry is no better and in many ways is worse. His precious few pronouncements have included the trite bogeyman moniker for Big Oil or the blaming of a service company for all ills, real or imagined.
We are going through what could be the most important economic, social and technological changes in the past 50 years. Energy is likely to be our expensive and intractable choke point unless the nation, at the highest levels, acts knowledgeably and responsibly.
It looks bad right now, no matter what happens in November.
Economides is a professor at the University of Houston. Oligney is an adviser on energy policy to various major corporations and public entities. Economides and Oligney are co-authors of “The Color Of Oil — The History, the Money and the Politics of the World’s Biggest Business.”