Today a Goldman-Sachs report forcasts oil prices in excess of
$105/barrel:
LONDON (Reuters) - Oil markets have entered a "super-spike'' period that could see 1970's-style price surges as high as $105 a barrel, investment bank Goldman Sachs said in a research report...
Goldman Sachs is the biggest trader of energy derivatives, and its Goldman Sachs Commodities Index is a widely-watched barometer of energy and commodities prices.
Goldman pointed out thin spare capacity in the energy supply chain, and long response times for bringing on supply additions, as well as robust demand in the United States and in developing heavyweights China and India, despite the recent rapid increase in energy costs...
And this is good news? Well I guess you'll just have to read the rest
Goldman said that were it to assume gasoline spending needed to reach 1970s levels to destroy demand, its upside super-spike estimate would be $135 per barrel for New York crude.
"Perhaps the ultimate answer to high how oil prices need to go before demand destruction occurs is derived from knowing when American consumers will stop buying gas guzzling sport utility vehicles and instead seek fuel efficient alternatives.
"Based on our analysis of gasoline spending and the economy noted above, we estimate that U.S. gasoline prices may need to exceed $4 per gallon.''
No whiff of good news yet? Keep reading.
As noted, these estimates are conservative, and don't reflect the declining value of the US dollar which, as I've argued before adds a new wrinkle to the usual supply and demand equation:
Another interesting thing about oil is that it is one of those commodities whose trade is done in US dollars.
So now there are actually two things at work driving oil prices: the laws of supply and demand for oil, and the laws of supply and demand for US dollars.
So even as increasing demand for a limited supply of oil drives prices higher, it also takes an increased number of devalued US dollars to purchase that oil.
And given continued US demand, those same oil purchases will drive increasing US trade deficits, leading to further devaluation of the dollar and increasing costs for oil ad infinitum.
The solution is simple, the question is whether we can somehow muster the political will to implement it. Again from my earlier post:
There is a way to stop or at least slow this death spiral: conservation. Even small gains in energy conservation can have important effects. Reducing consumption:
- reduces our trade deficit, reducing downward pressure on the dollar; and
- reduces our portion of global demand, easing our significant contribution to oil price pressure
Conservation has, of course, some other benefits as well, reducing pollution and decreasing our dependence for our oil fix from countries like Saudi Arabia and Venezuela. As I've argued before, US energy policy should be an inherent part of US Security planning.
So, that's the good news, the solution is simple, conserve. The devil is, as always, in the details: how do we implement a meaningful conservation regimen?
A gas tax of course.
And of course, there may be a few implementation problems, such as the conservatives screaming that it'll be bad for business, and whose money is it anyway? Liberals ranting at a gas tax's regressive, disproportionate affect on the poor. That sort of thing.
Both of which are, of course, true.
But consider, it takes neither a crystal ball, nor a Ph.D. in economics to foresee a time in the very near future where, as a consequence of the aforementioned factors, the price of oil will be much higher anyway. Does anyone seriously doubt that?
When that happens (next year, the year after?) GM indeed won't be selling any Hummers, the poor will be crowding what little public transportation exists, and those dollars spent ($4, $5, $6 per gallon?) will go to stuff the silk-lined pockets of some of the most regressive regimes in human existence, that's whose money it'll be.
Instead why don't we pay ourselves first by taxing gas at the pump to encourage conservation?
Why don't we pay ourselves first and pay down the inflationary and destabilizing Federal deficit?
Why don't we pay ourselves first and invest in conservation , alternative fuel and transportation technologies?
Why don't we pay ourselves first and establish US dominance over the only technologies absolutely certain to become vital over the next century as fossil fuel reserves are depleted?
We're going to be paying anyway. Why don't we pay ourselves first?
A would-be economic demiurge can dream can't he?
Now that global economic forces are combining to push oil prices so high even the plutocrats of BushCorpTM might notice them, perhaps we'll see some movement towards policies that might actually impact our energy consumption.
My fear though, is that the economic purists will win yet another ideology versus reality battle within the walls of the West Wing, and that BushCorpTM will let the holy market decide. And certainly the invisible hand of the market will eventually bring the death spiral to an end, though that end will not be much to our liking.
I'll take it as a hopeful sign that there have been rumblings along these lines from several disparate corners.
From Tom Friedman:
We need a gasoline tax that would keep pump prices fixed at $4 a gallon, even if crude oil prices go down. At $4 a gallon (premium gasoline averages about $6 a gallon in Europe), we could change the car-buying habits of a large segment of the U.S. public, which would make it profitable for the car companies to convert more of their fleets to hybrid or ethanol engines, which over time could sharply reduce our oil consumption.
From, God help me, Max Boot:
Set America Free estimates that if we convert entirely to flexible-fuel, plug-in hybrid electric vehicles, U.S. gasoline imports in 20 years will drop by two-thirds. As important, because Americans are the world's biggest car buyers, U.S. preferences would reshape the global automotive industry. Carmakers would wind up shipping hybrid electrics to Europe and Asia too. President Bush could hasten the transition through an international agreement to move major economies away from oil dependency. This would not only reduce the Middle East's strategic importance but also help reduce emissions to Kyoto-mandated levels.
There is, of course, a catch. Moving to hybrid electric cars won't be cheap. Automakers would have to retool their wares, gas stations would have to add alcohol-fuel pumps, parking lots would have to add electric outlets. Set America Free puts the price tag at about $12 billion over the next four years. It sounds like a lot of money, but it could easily be financed by slightly raising U.S. gasoline taxes (currently about 43 cents a gallon), which are much lower than in Europe and Japan. Higher taxes could also be used to encourage more domestic oil exploration and production, given that petroleum will never be entirely eliminated as an energy source.
And, just yesterday,Robert J. Samuelson:
The message for Americans is simple. We import nearly 60 percent of our oil. We can't eliminate imports any time soon, but we could limit them by producing more at home and conserving more (meaning higher fuel taxes, tougher gasoline standards, smaller vehicles and more hybrid engines). That would lessen our own vulnerability and ease pressures for the rest of the world. The debate that pits greater production against greater conservation is wrong. We need both.
Samuelson, along with Boot, are misguided in their insistance on clinging to the conservative fantasy of producing ourselves out of this crisis as I point out here:
Increased domestic production will not make the US more secure.
Until such a time as the US can go entirely without oil imports its reserves will remain part of the global domestic market. Since tapping US oil reserves (including those in the Alaskan Wildlife refuge) can only address a tiny fraction of US consumption, increased domestic oil production will have only the most marginal effect on US vulnerability to radical changes in oil prices.
But as all three of these gentleman have pointed out, as have I, this situation should rightly be seen as a national security issue. One which, I believe, presents a unique opportunity for any Democratic leader courageous enough to make the argument:
By failing to adequately encourage both conservation efforts and alternative fuel and energy use technologies, the US government continues to leave the American public at the mercy of these petroleum pushers. And as with our loan-sharks in totalitarian China, as oil junkies, the US is in no position to offend its oil suppliers. How comfortable are you with Chinese and Saudi Arabia holding de facto veto power over US policy?
BushCorpTM will, of course never betray the members of its special friends and family plan (otherwise known as big oil), by taking steps to decrease US oil dependence (and of course reduce the donor class' profits). Since the simplest way to achieve conservation and finance new technology is through a substantial gas-tax (Tom Friedman recommends a tax to keep gas at $4/gallon) the Republicans, who won't even support a tax increase to support a war effort, will never summon the will to do what needs be done. This leaves the "energy as national security" issue wide open to Democrats.
Like I said, good news.
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