The Cost of Oil

Posted on Dec 11, 2014

It’s December 2014 and the price of oil (and gasoline) has dropped about 40% from $107/barrel to about $61/barrel, within the last 6 months. Why? There are a number of reasons floating about, including:

  • A worldwide drop in gasoline demand due to a lethargic world economy
  • Lower demand due to cars that get better mileage
  • An excess US supply due to North Dakota fracking
  • The Arab states wanting to maintain market share by “squeezing out” the smaller producers, especially those in North America (fracking and tar sands).
  • A US lead attempt to “control” Putin and his nefarious goals by devaluing the Ruble

I’m not sure which is correct, if any? Are you? In my view it would be prudent to conserve the oil for critical uses (such as plastic manufacturing and medical uses) rather than “wasting it” through inefficient transportation or space heating.  Instead there has been a spike in the purchase of trucks and large SUV’s.  And the US still does not have a clearly defined comprehensive energy policy. This is beginning to sound an awful lot like the 70s’ and 80’s. What in the hell has Congress been doing for the last 44 years?

If we have learned anything from the past, this drop in prices will not last. In a year or two the price of oil will spike higher than it was prior to its dive and stay there for the future. Oil reserves are not infinite; they do have a finite life. As my friend and mentor Raymond Plank (Founder of Apache Oil) recently pointed out:  it takes a million years to form a barrel of oil, but only 80 years to grow a tree.  Oil pricing will ebb and flow, low and high forever. Its pricing is very volatile, connected as much with politics as it is with supply and demand.  In my view, oil extracted from tar sands should be considered criminal abuse of our planet.

So the next time you look at a tree consider what it does for you: provides beauty for the eye, scrubs CO2 from the atmosphere, provides shelter for animals, provides lumber for housing and provides fuel for warmth. Such a versatile, beautiful living creation.