Wednesday, May 4, 2011

$4 Gasoline Is New Normal That Neither Drilling Nor Conserving Can Prevent

The return to $4 gasoline last experienced in the spring and summer of 2008 is the new normal, with further increases to $5 gasoline probable in the next few years. Neither "Drill Baby Drill" nor "Conserve Baby Conserve" can change the fact that $4 gasoline is here and will be part of our immediate future. 

Neither US oil production nor consumption can be changed enough to impact materially the global pricing of oil.  The only way to escape costly oil is to really kick the oil habit and move to substitutes like natural gas, electricity, and biodiesel.

The calamitous economic collapse in the fall of 2008 that nearly became a global depression created a temporary respite, a false price signal that $4 gasoline was an aberration.  In July of 2008 oil reached $147 per barrel and then dove to $33 by December 2008 as a result of the near depression that enveloped the world following the September 15th, 2008 bankruptcy of the investment bank, Lehman Brothers. 

The only way to get cheap oil at this point is economic disaster that collapses demand.  So far the world has avoided another decade-long Great Depression.  Since the third quarter of 2009, the USA economy and the world's leading economies have being recovering, with positive economic growth resuming.

China's economy is maintaining near 10% growth rates, is already the second biggest in the world, and China's thirst for oil grows every month.  India is also now one of the world's ten biggest economies and its thirst for oil grows every month. 

China and India represent about one out of three people on the planet and they are industrializing and modernizing.

Part of that modernization is buying, driving, fueling cars and vehicles.  More on that in the next post.

1 comment:

  1. I agree. Domestic oil production does not control global oil prices. It helps us with our trade deficit but doesn't alter the global price for oil. It helps us with supply issues but our suppliers are pretty stable except for Venezuela. Why we allow SUVs (and I own one) is the real question.