Oil at US$45 per barrel

Oil at US$45 per barrel

I wrote a news item for Car and SUV (http://www.carandsuv.co.nz/news/oil-will-drop-to-us-45-per-barrel) that outlines how the price of oil could drop precipitously over the next year or so. Has this been reported in the mainstream press? Not that I’ve seen. It’s far less interesting than oil reaching US$150/barrel when the shock-horror of the situation means that the price of your brocolli will rise 50% and old ladies will have to crawl on their hands and knees to go and get their hair done because they can’t even afford the bus. Basic economics teaches us the law of supply and demand – oversupply something and the price drops, restrict supply and people will pay more. I don’t think it’s a great idea to totally let the market drive the price of oil down to US$45. For a start, oil has obvious environmental affects – C02 and various pollutants – so we need some way of moderately discouraging its use. Perhaps this is an opportunity for our government to temporarily increase the relative tax take from each litre of petrol so that they can subsidise the transport projects that desperately needs to happen to ensure we do endure total gridlock, then when the price of oil rises again, they can reduce it. This would mean minimal impact. Of course, oil will get relatively more expensive in New Zealand because our currency needs to get much weaker against the US dollar to balance it out. Maybe it’s all swings and roundabouts. Cars get more efficient, our currency gets weaker, the price of oil drops, the government raises taxes, we spend more time in the car because of poor roading planning – it’s an equation that could challenge a supercomputer. One thing is for sure, though, it’s unlikely we’ll ever drive hydrogen cars, purely electric cars are years away, and hybrids only offer a minuscule benefit over small diesels, so oil is still the way of the future.

I wrote a news item for Car and SUV (http://www.carandsuv.co.nz/news/oil-will-drop-to-us-45-per-barrel) that outlines how the price of oil could drop precipitously over the next year or so. Has this been reported in the mainstream press? Not that I’ve seen. It’s far less interesting than oil reaching US$150/barrel when the shock-horror of the situation means that the price of your brocolli will rise 50% and old ladies will have to crawl on their hands and knees to go and get their hair done because they can’t even afford the bus. Basic economics teaches us the law of supply and demand – oversupply something and the price drops, restrict supply and people will pay more. I don’t think it’s a great idea to totally let the market drive the price of oil down to US$45. For a start, oil has obvious environmental affects – C02 and various pollutants – so we need some way of moderately discouraging its use. Perhaps this is an opportunity for our government to temporarily increase the relative tax take from each litre of petrol so that they can subsidise the transport projects that desperately needs to happen to ensure we do endure total gridlock, then when the price of oil rises again, they can reduce it. This would mean minimal impact. Of course, oil will get relatively more expensive in New Zealand because our currency needs to get much weaker against the US dollar to balance it out. Maybe it’s all swings and roundabouts. Cars get more efficient, our currency gets weaker, the price of oil drops, the government raises taxes, we spend more time in the car because of poor roading planning – it’s an equation that could challenge a supercomputer. One thing is for sure, though, it’s unlikely we’ll ever drive hydrogen cars, purely electric cars are years away, and hybrids only offer a minuscule benefit over small diesels, so oil is still the way of the future.

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