Americans may have gotten a break from the $4-per gallon gas of last summer, but with temporary respite from one economic worry came the worse threat of global recession.
In fact, the world recession and low gas prices are linked, energy industry insiders said, because consumers demand less energy during lean economic times. In the middle of July last summer, the price per barrel of crude oil was $144. As of press time Thursday night, the Energy Information Administration listed the price crude oil at around $50 per barrel.
“We’ve got less demand for petroleum, and with less demand, you have lower prices,” said Tancred Lidderdale, a senior economist for the EIA. “What happens to crude oil next year depends on two things: what happens to the world’s economies . . . and how OPEC responds.”
The Organization of Petroleum Exporting Countries, a cartel of 13 oil-producing countries in the Middle East, Africa and South America, controls the production of most of the world’s oil. Its control over world oil prices has earned it criticism in the past.
The drop in prices for crude oil, more than 65 percent, has been a major hit for countries where oil is the chief export. To protect its members’ economies and profit margins, OPEC is considering cutting crude oil production to create scarcity and drive gas prices up again.
“How people will react to these [current] prices is unknown. With the lower prices, will we see old people return to their old ways?” energy information specialist for the Energy Information Administration Jonathan Cogan said. “We did see a decrease in demand with higher prices . . . The economic climate we’re in now, maybe instead of driving more, people will pocket that money and spend it on other things.”
Lidderdale said that if OPEC cuts oil production to inflate the price of oil, consumer demand for energy will not increase, even if it creates an artificial scarcity.
“If you cut back production enough, which pushes the price, that will reduce consumption to maintain a balance between supply and demand,” he said. “Higher prices won’t help economies recover.”
Johannes Schwank, the director of the University of Michigan’s Transportation Energy Center, said he views the standstill the oil cartel and consumers are locked in as an opportunity to pursue alternative energy research and implementation.
“We have had several cycles in our history where we have seen oil prices rise and fall,” he said. “When they started to rise, interest in alternative energy and donations spike, and they wipe out when prices go down.”
Schwank said he hopes ongoing worries about the economy, foreign oil dependence, climate change and global scarcity will provide the final push toward actual implementation of several different energy types.
“There is no question that we need to diversify, not just substitute for petroleum,” he said. “Our demand for energy is so large that we need to find a whole portfolio of resources.”
It would be especially difficult to completely phase out gas in the transportation sector, he said.
“It’s very important that we start bringing alternative energies into the picture and start using them very rapidly,” he said. “Once that technology becomes less expensive to produce, that will allow us to shift a lot of the gas consumption that is now happening on the daily commute to work.”
Though OPEC shows no sign of announcing a workable solution to the gas price problem, Schwank is hopeful about how everything will resolve.
“In a moment of crisis, there’s always opportunity and investing in alternative energy technology is exactly what we need,” he said. “There is tremendous growth potential, especially when we think of the cutbacks we have seen in the auto sector.”
Economic crisis, gas prices linked
Published: Friday, December 5, 2008
Updated: Friday, December 5, 2008
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