Oil Prices and the Fear Factor

The natural quesiton that occurs to most of us on the issue Sack portrays so well in his cartoon is: Why? Why have the prices we pay at the pump risen and fallen so inexplicably over the past year? My guy Michael Klare has yet another column on Tomdispatch that trys to make sense of this mystery: Reading the Gas Pump Numbers; What Do Falling Oil Prices Tell Us about War with Iran, the Elections, and Peak-Oil Theory.

Interestingly, he attributes the drop in oil prices to what he calls an easing of the fear factor over the past couple of months:

Since gasoline prices began their sharp decline in mid-August, many pundits have attempted to account for the drop, but none have offered a completely convincing explanation, lending some plausibility to claims that the Bush administration and its long-term allies in the oil industry are manipulating prices behind the scenes. In my view, however, the most significant factor in the downturn in prices has simply been a sharp easing of the "fear factor" -- the worry that crude oil prices would rise to $100 or more a barrel due to spreading war in the Middle East, a Bush administration strike at Iranian nuclear facilities, and possible Katrina-scale hurricanes blowing through the Gulf of Mexico, severely damaging offshore oil rigs.

Of particular interest to me is the section of the essay on the "peak oil" theory of future global oil supply, called "Finding Energy in Difficult Places." The current drop in oil prices, the recent deep-water oil field find in the Gulf of Mexico, as well as several other events, may lead our contrarian friends to feel justified in pooh-poohing the theory of peak oil. However, As it happens, "nothing in the current situation should lead us to conclude that peak-oil theory is wrong. Far from it." Klare describes the current situation as an oil "plateau" and explains that the "peak" is not one sharp ascent with a following equally sharp descent. This plateau may look good to us at the moment, as pump prices continue to fall.

In the meantime, for better or worse, we live on that plateau today. If this year's hurricane season ends with no major storms, and we get through the next few months without a major blowup in the Middle East, we are likely to start 2007 with lower gasoline prices than we've seen in a while. This is not, however, evidence of a major trend. Because global oil supplies are never likely to be truly abundant again, it would only take one major storm or one major crisis in the Middle East to push crude prices back up near or over $80 a barrel. This is the world we now inhabit, and it will never get truly better until we develop an entirely new energy system based on petroleum alternatives and renewable fuels.

So, same old bottom line folks; no matter how low we may go, the future depends on big change, not temporary stasis and complacency.

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