The WSJ‘s Environmental Capital blog is a must read. But what exactly were they thinking with this column:
So you think you’re being virtuous by trading in the SUV for, say, a Prius? What if, instead, you’re really sticking the next guy in line with higher pump prices?
Yes, the WSJ is revoking the law of supply and demand. Less demand translates into higher pump prices! How is this possible, you ask?
In the debate over why oil prices are so high, and where they’re going from here, there’s an intriguing idea making the rounds: The West’s sudden urge to kick the oil habit may run the risk of making oil even pricier in coming years.
The logic goes like this: Despite all the talk of “peak oil,” big producers in OPEC, and Russia and Mexico could tap 8 million to 10 million barrels per day of new oil — if they got the right market signals. That new supply would be enough to meet the world’s oil demand in the next decade, buying time to gradually shift over to a less oil-intensive economy without the whiplash oil-price volatility of recent months.
What? “If they got the right market signals”?? So, $130 a barrel is not the right market signal??? We’re to believe that OPEC, Russia, and Mexico are withholding oil that could provide them revenues exceeding $1 billion a day at current prices???? I lack sufficient question marks for this post. But it gets better:
The rub, according to this theory, is those market signals. Though oil-consuming nations worry about security of supply, oil-producing nations worry about security of demand. If OPEC and other big producers were sure that expensive, long-term investments in new production capacity would find willing takers, they would pony up to pump the extra oil. But with all the talk in the West about curbing oil demand, the theory goes, oil producers are thinking twice about investing in new capacity.
Yes, “with all the talk in the West about curbing oil demand.” Talk. Talk. Talk. I’m sure that OPEC and Russia are crying all the way to the bank and taking out prescriptions for Xanax worrying about how much people in the West are talking about curbing demand.
The WSJ leans on some Dutch report for this analysis:
This argument is laid out in a recent report from a Dutch energy think tank, the Clingendael International Energy Program. “Asking producing countries to take on the full risk of any possible (but unlikely [Note to Dutch — Duh!!!!!]) over-supply is not fair, and is also not in the long-term interest of the consumer countries,” the report says.
The report argues that oil-consuming nations need to ease oil producers through the transition to a “post-hydrocarbon” economy — not threaten one immediately. Otherwise, the report warns, declining production and increasing demand are going to create a nightmare decade with wild price swings and ever-more expensive oil–and geopolitical tensions between the haves and the wants.
I kid you not. Saudi Arabia, which is in fact already making about $1 billion a day from oil, needs Americans — who will pay some $1 trillion for oil this year — to “ease” them through this obviously painful transition.
So let me get this straight. If we don’t make a transition to a post-hydrocarbon economy, then obviously we are going to keep paying exorbitant prices for oil. But if we do, we are also going to pay exorbitant prices for oil anyway. Wow, we are really screwed. But if so, doesn’t it make a little more sense to reduce our oil consumption sharply, so even when energy prices soar, our energy bills don’t?
Of course, that raises the big question: Is a smooth transition to a less-consumptive society what OPEC and other big producers really want? Or do they want oil at $200 a barrel?
My head has almost exploded.
The really bizarre thing about this article is that the WSJ itself wrote back in October “OPEC’s Lever Loses Its Pull on Oil” (subs. req’d). As I wrote back then, “We cannot be far from $100+ oil.” Duh! Nobody is withholding large amounts of oil from the market (see “Note to media/Bush: Saudis/OPEC don’t control the price of oil any more!“)
The absurdity of this analysis was not lost on the WSJ commenters, one of whom wonders “What if famines in Africa are making wheat more expensive for Americans?”
As for me, I will continue to drive my Prius. If that tiny reduction in demand means my readers have to pay higher and higher prices for gasoline, well, I guess that is just evidence of my selfishness. I should have bought a Hummer.