Popping the Oil Price Bubble
On Friday, the benchmark oil price increased by its largest single day total ever, nearly $11.00 per barrel to nearly $140.00. To put that into perspective, the trading price for a barrel of oil in 1998 – just ten years ago – was less than $11.00, Friday’s price change.
Though there are plenty of reasons to believe that oil will never again cost anything close to $11.00 per barrel, there is also a growing recognition that the current state of the oil market bears some resemblance to a number of other over excited markets like Dutch tulips, Internet stocks, and new home prices in Fort Myers or outside Las Vegas. The similarities include daily headlines, constant water cooler discussions, and fears of missing a big boat.
Unlike some of those other bubbles, however, the recent rapid increases in oil prices are painful for almost everyone but those involved in selling or transporting crude oil. Even though they bear the brunt of consumer anger, oil refineries producing gasoline and gasoline retailers are actually being squeezed as badly as most of the rest of us by high prices. The wide spread nature of the pain caused by rapid oil price increases was brought home to me on Sunday as I visited the Newseum in Washington, D. C. and saw that oil prices were front page news on at least half of the world’s Sunday newspapers.
On a more personal level the prices hit hard when I visited my local fuel station and tried to fill my Jetta TDI’s 12.7 gallon diesel tank. Even though I was not yet on E, the pump stopped at $50.00 – the station does not let a single credit card purchase on their “pay at the pump” exceed that amount because of the increased risk of drive aways (people who leave the station without paying) and credit card fraud. If you think that $4.00 per gallon gasoline is expensive, try filling up with $4.89 per gallon diesel fuel. You will quickly figure out why the truckers and fishermen are protesting.
If the fuel price bubble dramatically pops, there will be a huge sigh of relief heard round the world. Nearly all of us will benefit if we stop filling the already overflowing pockets of the oil producers. My hope, however, is that we do not forget just how painful it is to have fuel prices that increase by a factor of 12 over a ten year period. I hope that people ignore those pundits who try to minimize the damage caused to the entire economy with comments like “in inflation adjusted terms, gas is cheap” or “just be thankful that you do not pay European prices”. Hooey.
Without gasoline, diesel, natural gas, and coal price increases, most inflation would disappear. The wholesale market price of gasoline in Europe is actually a bit less than it is in the US; Europe exports gasoline to the US. The difference in displayed prices at retail stations is that European countries often add very large taxes to gas to pay for social services, and to discourage consumption.
I believe that the fundamentals in the fossil fuel market point to a trend of increasing prices over the long term. Without a major change in direction, the inevitable forces of increasing difficulty in wringing oil and gas out of the ground combined with a growing world population of people with sufficient income to desire all of the benefits of a higher energy consumption is going to require higher prices in order to restrict the demand to levels that can be supplied.
There is, however, a ray of hope that a major change in technological direction can and will be made. Countries around the world are beginning to take another hard look at nuclear fission as a controllable, reliable, transportable power source that can replace oil and coal in a number of applications. Even such stalwart members of the anti-nuclear movement as Italy and Germany have strong voices inside the country that are demanding a change in attitude and acceptance.
Not only is fission a well proven source of electrical power, but it is also a proven source of motive power for ships. With not a whole lot of thought, it can be recognized as a valuable source of heat for many industrial applications, as a way to make salty water drinkable, and as a source of power for a growing electrical transportation system.
There are even some kooks – like me – who occasionally remind the world that there was once a large body of scientists and engineers who had computed that it was technically possible to put fission power plants inside large aircraft that could fly around the world a number of times without adding any new fuel. The US once spent about a billion 1950s dollars on a program called the Aircraft Nuclear Propulsion (ANP) program. It would have worked, but the Secretary of Defense, called the design a “a shitepoke*—a great big bird that flies over the marshes—you know—that doesn’t have much body or speed to it, or anything, but can fly” and canceled the program before the planes ever flew.
There will come a time when the fossil fuel industry will regret that they allowed prices to increase rapidly enough to wake up the sleeping giant energy supply represented by the world’s supply of uranium and thorium. Quite frankly, I would love to see the day happen when fossil guys have less power than those of us who recognize that fission is the new fire.
For those of you who hate high oil prices and greenhouse gas emissions, but also reject nuclear power, please tell me what you suggest as an alternative. Forgive me if I reject the notion that wind and solar power are ever going to compete in the important markets supplied by oil and gas.
Good article, like others I think your last paragraph lacks foresight though. Solar power is decades old but the lack of economic incentive (thanks to cheap oil) has created the illusion that the technology is stagnant. With the high price of fossil fuels creating an enticing incentive for innovation you will see this trend of staggering advances in photovolactic technology and battery advancements explode over the next few years, solar film and micro-ribbons are just the beginning… the combination of bio-fuels from algae and weeds (forget this corn business) will have a lot of competition from electric cars powered by electricity from geothermal, solar, and wind powerplants. With the regulatory red tape for nuclear plants taking at LEAST 10-15 years in the U.S. (my state of Utah has just barely started down this path) I’d say that solar, wind and geothermal will have an adequate head start to compete quite well.
The Uber-rich coupon clippers of America, the Bush family being a good example of this crowd, have a strangle-hold on oil, as well as other strategic portions of the so called ‘Free Market’ If the U.S. had chosen to be a moral people, and leaving Iraqi oil alone, and following Al Gore, decided to develop the South Western deserts, with the technology of the times – solar/thermal-molten sodium – electricity installations, for the same amount of money as that war cost, ($650 Billion), today, we would be tapping into the largest, renewable, sustainable, energy source the world has ever known. It would have paid every energy bill in the U.S.A. for maintenance fees only – FOREVER! It would be equivalent to an oil field that can NEVER run dry! Low cost electric power, and storeable hydrogen gasoline replacement from the electricity, for all! But: The oil companies wouldn’t like it!so georgie boy was put in control.
After the millions of murders, and $650 billions of dollars, borrowed from our children’s futures and pissed away, with thousands of our own and others maimed and disfigured for life, millions of families utterly destroyed, ours and theirs, we are no closer to Iraqi oil production than the Iraqis are!
The next time you hear a blithering idiot spoiled brat, drunken, drug addicted, sociopath, rich Arabic saber dancing daddie’s boy oilman, stand at a microphone and threaten YOUR safety with someone ELSE’S weapons, remember what you lost America, remember, and weep! (also see http://www.sciam.com/article.cfm?id=a-solar-grand-plan)