Business Insight Zone

Mind you, I’m not asking what you think the price of oil will do, but what you think it should do. When we talked about the sky-high price of oil last week, regular reader Darrin Dickey said this:

I don’t think this oil thing will “work itself out.” The major oil fields have peaked and are declining. It’s time for a drastic shift in how we think about transportation. For decades, we’ve puttered around sinking billions into researching alternatives (such as electric vehicles), but not very seriously. [...]

Americans are notorious for ingenuity, creativity and “finding a better way.” It’s time to kick that American spirit into overdrive and solve this problem once and for all. We can’t afford to wait for $6-$10 per gallon gas and then start contemplating what to do.

Regular reader Seth Gottlieb had this to say:

Cheap fuel is a major reason for many of our current problems: addiction to oil, disproportionate carbon emissions, big cars, lots of traffic, urban sprawl, poor public transportation, underinvestment in renewable energy . . . the list goes on.

This is in line with Tom Friedman’s much-discussed New York Times column from the other day, in which he wondered what a “mythical, totally imaginary, truth-telling candidate” for President would tell the American people about fuel prices.

For starters, he or she would explain that there is no short-term fix for gasoline prices. Prices are what they are as a result of rising global oil demand from India, China and a rapidly growing Middle East on top of our own increasing consumption, a shortage of “sweet” crude that is used for the diesel fuel that Europe is highly dependent upon and our own neglect of effective energy policy for 30 years.

Cynical ideas, like the McCain-Clinton summertime gas-tax holiday, would only make the problem worse, and reckless initiatives like the Chrysler-Dodge-Jeep offer to subsidize gasoline for three years for people who buy its gas guzzlers are the moral equivalent of tobacco companies offering discounted cigarettes to teenagers. [...]

This candidate would note that $4-a-gallon gasoline is really starting to impact driving behavior and buying behavior in way that $3-a-gallon gas did not. [...]

Friedman goes on to suggest that this mythical candidate make it clear — to consumers and car makers especially — that gasoline will never go below $4.00 per gallon again, and that the Federal government will uses taxes to make sure that the price stays that high.

The column has elicited responses from environmental-business analyst Tom Raftery of Greenmonk . . .

The absolute worst thing which could happen now would be for oil prices to drop again. Companies who had invested heavily in renewables would potentially go out of business and fuel efficiency would no longer be a primary concern for car buyers.

No, high oil prices are a good thing. Nothing will move us off the carbon economy as effectively as a strong financial incentive.

. . . and veteran oil-indusry watcher Geoff Styles of Energy Outlook:

Uncertainty is the enemy of action, and informed consumers must surely be torn between two huge uncertainties about oil prices that have recently been dueling in the media. On the one hand, they are confronted by opinions — backed by some evidence — that global oil supplies are approaching, or have already reached, a plateau beyond which they cannot be increased to meet rising demand, and from which they will eventually decline. [...] Meanwhile, other observers suggest that oil may be experiencing a speculative asset bubble, as investors flee to non-perishable commodities for safety from weak stock markets, low bond yields, and the sliding dollar. [...] If you accept the Oil Bubble Meme, crude could be back under $70 within a year. How should the average consumer decide which view to believe, in deciding whether to replace that gas-guzzler with a hybrid? A floor price resolves at least half of that uncertainty.

(Note that Styles thinks that setting a price on greenhouse gas emissions would work better than a gasoline price-floor measure because it “would kill two birds with one stone, and the right bird first.”)

As I discussed in my post from yesterday, American Airlines, Ford Motor, and other major industrial companies are making large revisions to their way of doing business, based on a long-term bet that oil prices aren’t going to decline drastically from where they are today. Drivers are making similar choices, curtailing their driving miles in ways never before seen. So, whether or not we like high oil prices, we seem to be making choices that accommodate them.

Now tell me . . .

How high do you think petroleum prices should be?

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(Photo by adpowers.)

Category: Energy