By Matt Owens December 8, 2014
Reuters describes an oil oversupply in a recent article.
But shouldn't we call this price volatility instead? After all, it was just 2007 when oil was regularly cheaper than the currently "low" prices of around $60 to $70 per barrel.
The price of oil is rising because we keep burning it, so fewer cheap sources remain, and we are thus increasingly forced to pump it from more expensive oil fields by using more costly methods...this trend of rising prices and volatility will not stop as long as we continue to burn oil.
Ironically, this volatility is making new oil wells and Canadian tar sands unprofitable.
Anyone who regularly buys gasoline is naturally happy about slightly lower prices at the pump, and those energy savings truly do enable more money to be directed towards the rest of our economy, which is good — but energy price volatility is bad for the economy overall. Volatility makes planning ahead difficult, thus causing employers who fear price swings to delay hiring, stockpile cash, and keep wages low.
The low price of oil is now possible because Middle Eastern nations have planned ahead and rationed out their oil reserves. They are pumping from wells that would be profitable at much lower oil prices. Much of the oil from America, Canada, Venezuela, and Russia is only profitable at prices closer to $100 per barrel. So, over the coming months, new wells will not be installed in those countries (if oil prices remain low). Soon enough, oil prices will shoot back up because demand for energy is insatiable.
We wouldn't have these problems if we overhauled our energy system to use renewable energy sources. Two excellent options are available and well-tested: battery-powered and hydrogen-powered cars. Both sources would cost about as much as fossil fuel energy, once full-scale production (economies of scale) kicked in. Shown below is the Mirai, a hydrogen fuel cell vehicle that Toyota plans to bring to market in 2016. It would get 300 miles per tank. It will not be able to achieve significant market penetration, however, unless government-directed action enables an energy system overhaul.
I haven't even mentioned the climate, but obviously, the continued burning of fossil oil (hydrocarbons) is causing excessive quantities of carbon to build up in the atmosphere, ocean, and biosphere, with extremely negative consequences.
See the EIA data for oil prices here.