1. Oil and the Global Economy
Despite the volatility engendered by the Islamic State’s move against Kurdistan and the US’s reentry into active participation in Iraq’s civil war, oil prices were little changed for the week with New York futures closing at $97.65 a barrel and London at $105.02. For now the markets seem to believe that US airpower will keep the IS out of Kurdistan’s and Iraq’s southern oilfields so that oil production will remain stable or even grow. Likewise, the markets seem to believe that current oil and gas sales are exempt from any sanctions resulting from whatever Moscow does in response to Ukraine’s successes against the separatists. The markets continue to move in response to normal supply and demand developments with a wary eye to the risks that may stem from the political chaos.
The global supply and demand picture is mixed with OPEC reporting that production in July was at the highest level in five months; however much of this was due to a jump in Libyan production which is a murky story at best. Chinese imports were up by 2 percent from June to July, but still 9 percent lower than last July. Last week’s US stocks report provided little guidance to the markets as changes were in line with recent trends and seasonal expectations. […]
Perhaps the key question for the future of world oil supplies and prices is just how long before US shale oil production peaks and starts what will likely be a rapid decline. As the financial press and even government agencies have to been loath to address this issue except in optimistic terms, outside analysts using different techniques have been providing estimates as to how long what is termed the “shale oil bubble” will last. The most pessimistic of these estimates have been running around 2016-2017 giving the shale or light tight oil industry another two or three years to grow. The government has production growing for most of this decade but then declining only gradually.
Last week a new study based on Hubbert linearization was released. This study crunched the last seven years of US tight oil production and concluded that the US shale industry will ultimately produce a total of 7.7 billion barrels of oil with peak production reaching 3.9 million b/d in mid-2015. If these projections turn out to be reasonably correct, then US tight oil production could be down to circa 1 million b/d by the end of the decade which is considerably less than the EIA and the financial press has been projecting. Although some quarrel with the numbers in the new study, the general idea that we should be seeing significant declines in US production within the next three years is the same.
This may be a bunch of nothing.
Market forces are working to decrease gasoline right now. The biggest market change is not from the demand side (which has been decreasing since 2007 if not earlier in the U.S.) but from the supply side - due to increased oil supplies and false fears of geopolitical turmoil causing price rises, world oil prices have been decreasing.
Gas prices are down almost 12 cents from a year ago.
"Prices are falling at about a half cent a day and aren't showing signs of slowing down," said Mark Jenkins, spokesman, AAA - The Auto Club Group. "It's unusual to see prices steadily decline in the late summer months, but increases in domestic oil supply are helping to offset fluctuations in demand during the busy summer travel season."
Politics may dictate that the revenue be returned in some form to drivers, who are voters. Oil companies are already starting ad campaigns aimed at drivers which blame the coming increase in gasoline prices on AB32. Unless the individual driver seems some compensation for this, I wouldn’t trust on people rationally saying themselves, “Of course, this will help with global warming,” and accepting it.
Len Conly
Why does it have to be rebated to the motorists or truckers?
Why not avoid an accounting and paperwork monstrosity by applying the revenue to public transportation or railroad infrastructure or both? Doing so would improve alternatives to driving and freight movement.
On Aug 9, 2014, at 12:20 AM, Len Conly wrote:
The increase in the price of gasoline as a result of cap and trade legislation has got to be returned to the public in a tangible way. This is going to require that individuals and companies keep track of their gas expenditures in order to qualify for the rebate, so bookkeeping is going to be involved.
Presumably the California Energy Commission has a plan. A letter to the owners of all registered vehicle owners in California should be sent out explaining the reason for the increase in the gas tax as well as pointing out that driving more fuel efficient vehicles will reduce their tax. It can also be mentioned that the money rebated can be applied to a more fuel efficient vehicle. Perhaps the legislature should work on a bill that would increase the size of the rebate if people apply it to things that will reduce their energy consumption, e.g. home insulation, solar panels, perhaps even for a more fuel efficient vehicle than what they have now.
PG&E has already credited cap and trade money to reduce energy bills (I personally received a $34 rebate a few months ago; a letter was enclosed in my bill, I believe from the California Energy Commission, explaining the rebate.)
I was seeking to stimulate discussion here comparing the efficacy and public acceptance of these (and potentially other) pricing incentives that we could promote. Anyone?
Darrell
I agree with your assessment and I love the graphics (Ride with Hitler? Wow, they were serious.)
So far we’ve talked about oil demand-side actions that are possible during the current national political gridlock and could cut U.S. oil use in half 2005-2030 – Building Healthy Communities with good transit, biking, walking, and TOD; promoting EVs; and truck freight efficiency and shift to rail.
Mike Bullock emphasizes urgency of action to reduce GHG emissions faster, and movement building by the Sierra Club and other groups seeks to overcome climate denial. So let’s talk about actions to reduce oil use faster that could be taken by state legislatures or Congress given sufficient political will.
To get you in the mood, attached are five World War II U.S. propaganda posters promoting saving oil – especially by car-pooling – to complement gasoline’s ration coupons (sixth image). Yes, that is an early Dr. Seuss drawing! Great efforts can succeed when obstructionism is overcome by national will – but to do what, exactly?
My email yesterday talked about pricing incentives (disincentives). Let’s list and compare some, especially on how they would be charged, how revenue would be rebated and/or used for government purposes, impacts on consumers, and efficacy at incenting oil reduction.
Carbon cap and trade – Sierra Club pushed hard for the failed national legislation, and California will begin charging for oil’s emissions under AB 32 unless delayed by oil industry lobbying. Billed to oil refineries this is easy to collect. Revenue is used for mitigation measures like funding transit, affordable housing near transit, and high speed rail. Both cost impact and incentive is rather small – perhaps an additional 15 cents per gallon (LA Times editorial). Funding improved service benefits low-income riders.
Carbon fee/tax and dividend – “Citizens Climate Lobby [the first hit for this you find on Google] proposes that a [rising] tax be placed on fossil fuels, based on the CO2 content of those fuels, at the first point of sale. Revenue from that tax should be returned to the public as a monthly or annual payment to protect households from rising costs associated with the carbon tax.” This would be easy to collect but more involved to distribute back to every individual by the IRS. Consumers using less than average oil would directly make money, a tangible incentive.
Revenue-neutral carbon tax – As in British Columbia, Canada, where carbon tax revenue is used to reduce income and corporate taxes since 2008 (Wikipedia). This is again easy to collect, plus no distribution is necessary and economically it replaces taxes on productive activities with tax on “bads” we don’t want. This could impact low-income consumers who pay little or no income tax today, though, and the incentive to use less oil may be rather small.
Gasoline tax – I’ve emphasized here before that it is inherently proportional to carbon emissions. Its collection mechanism is long-established. It is the traditional source of transportation infrastructure funding, but has not kept up with inflation and higher vehicle MPG for political reasons. A gasoline tax increase would be a small proportion of total gasoline spending – which is a small part of total automobile expenses – but it is directly experienced frequently by drivers.
Mike’s fee-and-dividend “Intelligent Parking” (PDF) and “comprehensive road-use fee pricing and payout system” have a different structure but should create price incentives similar to the above. New infrastructure of a transponder / GPS device in every vehicle would be required. Payouts would be an incentive like for carbon tax/fee and dividend. We need a more detailed discussion of their efficacy compared to other incentives.
That’s it for me for now. What do you think – given the political will, what would create the most effective incentives to reduce oil use as soon as possible?
Darrell
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