The distant dream of $200 oil

Dulcie likes to remind me whenever possibility arises that, as a college professor, I am blissfully insulated from the vicissitudes that afflict normal people. Thus you might think I am unaware of what goes on in the world. I like to think I am very informed, regardless of what Dulcie might think. For example, I am well aware that something happened on Tuesday. I know that because my in'nernet connection speed slowed to a trickle; but being the busy college professor I am, I was unable to leave my office to join in the global celebrations. Or, perhaps, I was just a little jaded by the incessant build-up to really get that excited.

The other day though, I was filling up the TSX and got concerned that the tank was filled by the time the dial hit $20. Even as the petrol poured across the forecourt like that scene from the Birds, the dial would not budge. What happened? Only a few weeks ago, the numbers would skip nimbly past $40 and keep going. It seems like the oil price has crashed big time. Back in the balmy days of summer, as the price soared skywards, reaching a breathless $147, those silk-suited experts working for institutions now profiting from giant bail-outs confidently predicted the price would soon reach $200, flicking their cuff links with emphasis. It was all about explosive growth in emerging markets we were told, the free market at work; all accusations of manipulation and speculation were dismissed as mean-spirited nonsense.

So what happened? Here we are, a few weeks later and the price is only one third of what it once was. It never exceeded that high water mark of $147. Does anyone have an expectation it will reach $200 any time soon? The same cuff-linked experts are now speculating as to how low it will go. Great to have a job where it never matters whether you are right or wrong. So we are to believe that the economic downturn has reduced to demand to such an extent that the price has dropped by a factor of three. People are driving less; factories are making fewer products. Can the free market really explain this? Or, as I tend to believe, was there speculation and manipulation at work in the market? The steepness of the rise, and the equal rapidity of decline seem hard to explain just in terms of fluctuations in demand.

Whatever the real reasons for the wild ride in prices are, the fact it is now so low is really disastrous for the progress of alternative energy sources which should be a priority. There are echoes of the late seventies here. The then giddy oil price had prompted all kinds of efforts in alternative energies. Exxon liked to show off a solar-powered house at the research lab I interned at. These all disappeared like the morning dew when the oil price dropped. When I returned to that Exxon lab two years on, the solar house was long gone. 25 years on it's a similar pattern although the stakes are now much higher. Back then global warming was not in the picture. Will the encouraging growth in things like wind power lose impetus in the face of this crash? Dulcie and Aylwin's Big Beer Adventure was punctuated by the sights of pieces of turbines hurtling along on improbably wide vehicles towards the western states. Across swathes of Wyoming and elsewhere the white blades were to be seen in their stately rows, only a slight blemish on the windswept wild horizon. Surely the absence of credit and the turbulence in the economy will impact investments in both the public and private sectors.

While I selfishly enjoy filling the tank for a few dollars, I would rather return to the days of summer when the oil price was making itself felt. Although I would rather that price was a true reflection of supply and demand and not a false consequence of manipulators.