While all the indications are that we are heading for an oil crunch soon, in the short term the high oil prices have finally had an effect on demand.
There is an old saying in the world’s financial institutions that “nothing cures high prices like high prices,” and it certainly seems as true today as in the 1970s.
According to the OECD, oil demand in Western countries is set for its biggest fall in 25 years as the global economic slowdown intensifies and consumers respond to high prices.
In America, for example, the Transportation Department announced this week that Americans drove 4.7 per cent, or 12.2 billion, fewer miles in June compared with a year earlier. That’s a lot of gasoline saved. More significantly, it was the eighth consecutive monthly fall.
As consumers all over respond by driving less, and downsizing their cars world oil consumption is now growing at a significantly lower pace than had been imagined a year ago.
Moreover the Olympics is also having an effect on world oil prices as China’s decision to shut down large swaths of its industry during the Olympics to help to cut air pollution will also reduce oil demand.
So Americans can thank Michael Phelps not just for winning so many gold medals, but, also for in part reducing what they pay at the pump.
The only problem for consumers is that it won’t last. Whilst the coming recession will keep prices low for a while, all the indications are for the long-term going to be up.
Governments should also learn the lessons of the high oil prices over the Summer and be bold about disinvestment programmes out of oil, heavily promoting renewables and efficiency instead. Because what goes down, goes back up…
In all the talk of the price of oil as connected to driving habits, please dont ever forget that oil is used for much more than gasoline. If you have ever used any commercially available product, you have used plastics and this comes only from petroleum.
The prices of gas at the pump right now, as oil drops to $111/barrel, is governed much more by the fact that our refineries are still running at full capacity and are still unable to keep up.
If the ‘green’ policies of the last 30 years had involved a bit more common sense, we would still have many more refineries than we do today and we would be enjoying much lower gasoline prices. On top of that, if drilling had been allowed in ANWR and offshore years before when proposed, we would be much less dependant upon foreign sources of oil, would be sending much less of our GDP offshore to terrorists, and would have the funding available for alternative fuel research.
So hug a tree if you must folks, but be aware, you are contributing to the overall issue rather than to the solution.
Steve,
Higer gas prices does not mean gas prices are high. They have been historically too low, leading to waste and inefficency. We should demand a floor on prices and increase taxes to keep the price at a level with the prices in Europe and other developed countries. This way market forces will drive down demand while raising money for alternitives, and from programs to buy gas guzzelers and take them off the road. By using less gas, prices won’t really be going up so much as consumption would be going down, which is critical if the US wants to reduce the total carbon emmisions required to address climate change.
And we will all enjoy better health, cleaner skies and protect out water.
Pardon me if I now go outside and hug a tree,
Mike