People tend to think about the price they spend per gallon on gas as a given far out of the control of mere mortals. Oil suppliers rule the day as does the futures market; despite political rhetoric from all sides, government rarely if ever tackles the issue. The policy is ad hoc, and renewal sources (wind and solar) suffer when petroleum prices are low.
Here are some questions and answers [Aided by a primer written by the Economist in December.]. Oil price was $70 per barrel then, and may be forced down close to $10 per barrel.
Q: Why is the price of oil and gasoline plummeting?
OPEC is leading the way, especially Saudi Arabia. “…the Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia.”
Q: Why would they do that?
In part, to reassert OPEC dominance in the oil market. Petroleum is power. “Saudi Arabia can tolerate lower oil prices quite easily. It has $900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to get out of the ground.” The United States and other oil consumers tend to tread lightly on negotiating oil price with Saudi Arabia and OPEC.
Q: Who loses?
Countries such as Russia, Iran, Venezuela and other troubled economies highly dependent on oil revenue. But the U.S. fracking industry also suffers, which can’t expand and grow when extraction prices dip below $60-$70 per barrel. Fracking involves pulverizing the earth with high pressure water to release the natural gas held in abundant oil shale supplies. It is a booming industry, the 21st century equivalent of a Gold Rush.
Q: What’s good about fracking?
Theoretically, it is a step toward U.S. energy independence. It produces major economic changes in the areas where oil shale supplies are plentiful.
Q: What’s bad about fracking. Environmental issues
Two interesting headlines from the news recently:
“After 11 quakes in the last two days – with one registering at a 3.6 – Irving, Texas’ sudden onset tremor problem might be the fracking industry’s nightmare.
There’s a monster lurking under Texas, beneath the sand and oil and cowboy bones, and it’s getting a little restless after a 15 million year nap.”
“Not long after two mild earthquakes jolted the normally steady terrain outside Youngstown, Ohio, last March, geologists quickly decided that hydraulic fracturing operations at new oil-and-gas wells in the area had set off the tremors.” Now a detailed study has concluded that the earthquakes were not isolated events, but merely the largest of scores of quakes that rattled the area around the wells for more than a week.”
Q: Name the world’s largest oil producer.
The United States outstripped Saudi Arabia in 2014 as the world’s largest oil producer. The United States has been the world’s largest natural gas producer since 2010.
Q: What are the components of gasoline price:
About two thirds of the price is based on crude oil prices. As of November, according to government statistics:
in percentages: (rounding slightly less than 100 percent)
crude oil: 62.4