No Recession for Oil

Despite the worst economic conditions in half a century, the price of oil doubled over the past two years from a low of about $45 per barrel in 2008 to a high of $92 per barrel on the last day of trading in 2010. This doubling of oil prices occurred as supplies increased by about 1.2 million barrels per day during the past year. Yes, that's right, the price of oil more than doubled during very weak economic conditions and increasing supply.

It doesn't take a genius to figure out what will happen as the economy recovers. Demand for oil will increase and the price will trend even higher. Most experts predict oil prices above $100 per barrel in 2011. Lloyd's of London issued a report earlier this year predicting prices as high as $200 per barrel by 2013 and warning of “catastrophic consequences” for businesses that fail to prepare.


Some analysts say that the Organization of Petroleum Exporting Countries will step in to increase supply temporarily and cool off markets once oil hits about $150 per barrel. Think about that for a moment. Remember what happened to our economy when oil prices hit $147 per barrel two years ago? Well, that is the best case scenario for the next few years.

I don't know about you, but I'm not really comfortable relying on OPEC to keep oil prices from going over $150 per barrel. What if they decide that a price of $175 per barrel will let them maximize profits without losing too much market share to alternative energy sources? What if prices go even higher because of conflicts in the middle east, a major supply disruption, and/or a significant weakening of the U.S. dollar? What if they ask us to ease off the pressure to root out terrorists in their countries in return for lower or more stable oil prices?

We can change this scenario without undermining our quality of life. For example, we have reduced our use of oil to generate electricity significantly since the 1970's -- without sacrificing dependability or affordability of supply. We have used more efficient designs to lower fuel consumption per square foot for buildings and per mile driven for vehicles -- without sacrificing comfort or safety.

We can do even more by diversifying our energy sources throughout our economy. Yes, it will take significant up front investments. But think about the medium- and long-term benefits. Brazil has completely eliminated its dependence on foreign oil by building the largest biofuels industry in the world. New vehicles powered by electricity generated with a mix of natural gas, wind, and solar could similarly help us re-gain our energy and economic independence. Best of all, the wind farm or solar farm that is built today will have zero fuel costs 5 years, 10 years, and even 20 years from now. Let OPEC compete with that.

John Howley
Woodbridge, New Jersey