Friday, June 22, 2012

Oil prices rise, drop, and rise again. Buckle up, Earth.

Predicting global oil prices is not easy. Prices have more to do with global politics -- and supply and demand -- than with politicians, but voters take out their anger on the leaders they can reach.?

By Scott Baldauf,?Staff writer / June 6, 2012

A sign for $2.99 a gallon gasoline is seen as vehicles wait for a traffic light to turn green at a Hot Spot convenience store on the corner of Henry and Converse Streets on June 1, in Spartanburg, S.C.

Rainier Ehrhardt/AP

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For sheer roller-coaster thrills, picture yourself as an oil market analyst.

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Imagine the challenge of (correctly) predicting the future price of oil and all those wonderful fuel products Americans love to use, in the midst of a crucial election year.

When oil-producing countries like Iran, Iraq, Libya, and Nigeria, become unstable, oil prices can soar. When economies shrink in energy-consuming places like Europe and the United States, oil prices can sink. When both trends happen at the same time, oil market analysts dig into their pockets for a coin to flip.

In February, when oil prices surged over $110 a barrel, some oil analysts were predicting an End Times scenario, where the US economy would go into a fetal position, rocking back and forth and singing Adele songs. Fox News Channel, the drama queen of the global news pageant, was betting that gasoline pump prices were likely to hit $8 a gallon, a factoid that, at least for now, appears to be utterly false.

RELATED: Eight ways $100 oil may affect you?

Early this week, crude oil prices had dropped to $84, driven downward by the lower demand of a contracting global economy. Gasoline prices are dropping with them, down to a national average $3.56. This is significantly higher than the 26 cents it cost to fill your father?s ? or your grandfather?s ? Oldsmobile, but the dollar is worth less today than it was in the 1950s. In inflation-adjusted dollars, we have been paying $10 to $30 a barrel for the past 160 years or so, with just a few major spikes in 1860-1861, 1979-1980 and 2007-2008.

Now the bad news has gotten so bad, it?s good. On Wednesday, oil prices shot up again to $85.56 a barrel, ahead of Federal Reserve chairman Ben Bernanke?s testimony before Congress, as oil market analysts bet that he would urge for some kind of stimulus package.

Aside from gasoline price swings from nearly $4 a gallon to $3.50, the volatility of oil prices has other effects. Higher oil prices, which drive up the cost of production, make factory owners think twice about expanding. High oil prices also encourage consumers to start thinking about conservation, such as turning off lights and buying fuel efficient cars. But high oil prices also make oil exploration in new places more attractive. And as oil companies start finding oil in untapped fields in Kenya, North Dakota, Ghana, Alberta, Israel, and Somalia, that increases the overall supply of oil, which ends up driving prices down again.

A growing global supply of oil might seem to be the solution to America?s economic doldrums, but this solution brings a host of ecological problems, according to Foreign Policy magazine?s Steve Levine.

Already, carbon emissions last year reached levels that are linked by scientists with a 2 degree rise in global temperatures over the past 50 years, according to the International Energy Agency. But if carbon emissions continue to rise ? as they will if more energy is produced, and if energy prices drop enough for people to consume more of it ? the world will ?blow through? emissions targets agreed to in global treaties.

So this provides what may be the most vexing moral dilemma of our times: to grow, or not to grow. That is the question.

One thing you will notice about this process: It has very little to do with politicians. These days, the price of oil is determined more by roughnecks in greasy denims or Wall Street futures traders than by Middle Eastern oil sheikhs or White House economists. But voters, driven by fear or angst, still feel the need to punish the man in charge for their economic suffering. And in an election year ? as former French President Nicolas Sarkozy can attest -- the economy matters above all else.

The roller coaster continues. Buckle up, Mr. Obama.

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