Wednesday, December 3, 2014

Low Oil Prices HURT Economies?

I admit I am no Harvard trained economist nor am I well schooled on the details of the oil industry.  Unfortunately by being sick the past few days, I have listened to more TV news drivel on various subjects including this one than I normally would.

I strongly suggest everyone search for their news and perspectives on this subject via online news forums.  The drivel coming out of CNN and FOX in the USA are in all time high "spin mode" to defend the "poor" oil industry.

I have friends in the oil industry and relatives whose careers depend on its viability. They have much deeper perspective and feelings on this subject than I do I'm sure. Yet I can't stop myself from spewing a little against the unsubstantiated drivel on USA news waves this week.

Yes, there are winners and losers in any swings of this nature in ANY industry. Everyday the markets bet and invest on whether investments or commodities will go up or down.  Some day traders play these movements by the minute. Nobody wins all the time, and a lot of people LOSE all the time. Why...because they don't know what they are doing.

I am an admitted free market aficionado as a marketer and an entrepreneur.  I have lost my share of business risks...and fortunately won a few battles along the way to keep me in the game. The older I get, the more I see reason and rationale go out the window of business...and I see big corps and special interests taking over industries based on funding government regulators. For me, one of the most corrupt, controlled industries in the world is BIG OIL.While I would like to think these market price corrections are true reflections of market factors, I think this battle is a behind the scenes war between the large, politically connected oil producers trying to stamp out competition.  There is also a strong element of political battles that this phenomenon supports as we have seen in the quick devaluation of the Russia ruble and their overall economy.  Other producers like Venezuela and Mexico are quickly feeling the pain as well. The big boys in Saudi Arabia and elsewhere have stockpiled cash against times like this while these other socialist or communist producers have not been able to do so because they have such huge social and economic problems. Where the states control and extricate the profits from petroleum, it is pretty hard to stockpile cash in the "good times" or to develop more sustainable enterprises for their economies.

The bigger issues to me are...should any economy be based on petroleum production and sales?  And just how is it that market supply and demand really influences the price of crude or a gallon of gasoline?

As a technology and futuristic driven soul, I have for decades been a proponent of a cleaner environment and expansion of cleaner, "green" energy production. It has been obvious to me that big oil along with their political muscles have kept new energy R&D as slim as possible in order to continue their hold on global reliance on the combustible gas engine and oil burning energy. Even with these continued investments contrary to new sciences, it seems to me any semi intelligent human should be able to see that technology advances are going to reduce reliance on oil and gas at a faster and faster rate. The more we buy electric or solar powered vehicles and apparatuses, the more we will see reduced costs in energy production or consumerism. Why should it be a surprise to anyone that demand could be waning?  Why shouldn't the prices come down?  Just so we can save an antiquated oil industry?

It always alarms me when I sense that the big powers that be continue to fight over controls of oil production and pricing.  How is it that for so long OPEC has controlled the global prices of energy we all rely on? How is it that the USA as the largest consumer, continues to support and fund further exploration of oil outside our own borders?  Why are we not focused on replacing oil with greener clean solutions like wind, solar and nuclear? I even hear reports that new uses of Hydrogen in controlled settings could produce more energy than any other known resource. But no, we continue drilling, fracking and shipping more and more oil in and out of our countries with no end in sight.

And why is no one paying attention to the positives of reduced prices on gas and oil?  Oil is a leading "inflator" of our whole economic system.  I think we could stand for a little de-inflation...especially for the poor and middle class.

Let the economic "war games" begin. Those countries rich in oil whose governments have been using those revenues to run over their people and political enemies for too long and not creating vibrant, diversified economies deserve to "go bust" or at least experience political upheaval. It is just bad leadership to base your country or economy on a limited resource whose future looks less than robust. Everyone is facing huge disruptions based on technological and scientific advances.  Any country or business who is not keeping up with these advancements are doomed for failure...and unfortunately the main people who will suffer are the blind citizens who follow their governments or syndicates over the cliff of tyranny and socialism...while all depending on oil.

I look forward to a brighter day when oil and gas do not control so much of our economies or attention of our political leaders.  I look forward to cleaner forms of energy that will reduce or even eliminate the cost of heating or cooling our homes or running our transportation vehicles.  I look forward to seeing new energy companies being twice the size of oil companies. And more than anything, I look forward to seeing my energy dollars supporting my own country's economy instead of building kingdoms in the deserts of Dubai or Yemen.


Unknown said...

Edward, appears we are served well by your being ill … and spending some time listening to the pining by the "Economists" on Fox, CNBC, HNN, et al. Your missive speaks to the center of many issues, econ, national and human interests and more. To that end, thank you.

First, I liked an aspect of your writeup not specifically addressed. Political slant. Your basis had no "partisan" diatribe. Good for You!

Concur we must think energy independence. Does this mean "green?" Yes and No. Yes, we should strive to individually get off the grid; Yes, we should use available tools to lessen individual use of certain power sources. But the issue is never this simple … which is a column in and to itself.

Oil: Is lower pricing good, while demand is high? Hell Yes! It's estimated GDP is affected 0.05 for every $15 change in oil pricing. Effectively, this lower pricing puts $$$ into the hands of the consumer; who presumably will be utilized vs saved. Looking at this in the inverse, who gets hurt in the short term … big oil companies and countries as you pointed out well.

So yes lower pricing helps, right? There's a "No" response, as well. Lower pricing means the demand to seek alternative energy sources is discounted, in part. Consumers don't inherently see the issue … and those who are spending billions on the "green" now have to compete against the lower yields, as well.

Yes and No … damn, nothing is simple. Again, thanks for the post … sf

edward said...

Sf...thanks for you as usual very insightful comments. I am always honored to have such valid feedback and extra ideas on these important subjects.

My biggest frustration is that while I am an avowed "free marketer", I am balanced enough to realize that we as civilized people (wherever we exist) must not allow big businesses or out of control corporate interests run over everyone else in the world. In aspects of how we use or abuse our natural resources...such as oil, water, air,and other minerals so important to our survival, there have to be limits to "freedom" in rights end where others begin.

Politics is SUPPOSED to be about elected representative LEADERS who protect our borders, our culture and our natural resources. Unfortunately, in the first and last biggest experiment of democracy and individual rights, our USA government has become the corrupt engine of big money and big corporation industry complex. They are hand in hand out to protect special interests...and yes, antiquated technologies and ways of life that are no longer sustainable.

We individuals must stand up to this corruption and lack of level playing fields in pursuing best solutions to our world's energy needs. Change is always costly...and those on the wrong side of progress are going to lose in the long run. Unfortunately even to the masses it is about $$$, and the unfortunate price of lower prices as you point out is that consumers will become complacent about pursuing what is better for our environment and progress based on current discoveries in better living and better energy sources.

edward said...

My friend "K" comments in an email...

Thanks Ed. One solution is to keep oil prices at the pump as is and give the balance to green energy development. That way the inevitable lower prices are avoided and won’t upset all the current green energy plans and businesses – it would actually do the opposite.

Lower prices would stimulate the economy a bit but the damage to renewables will be very bad indeed.

I think humans are dumb to allow their governments to continue to subsidise oil. I think it should be taxed to stimulate renewables and the revenue from taxes pumped directly back to the private sector for sustainable renewable development and give those companies a shot in the arm to help them towards economies of scale – something that will take many decades to achieve if we have low oil prices. Governments need long term vision and help industries that are both good for our planet and have a bright sustainable future – ones that just require some extra research funds as well as funds to help them get to economies of scale.

Keep the free market for sure, but tax things that are bad for us and direct the revenues directly to the private sector to stimulate renewables and put us all on a path to a sustainable green future. It’s just common sense to me. Humans on mass don’t have common sense though.

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