Of Roads and Oil

Posted by Clark Williams-Derry

10/18/2007 03:35 PM

Oil price spikes are getting lost in Cascadia's transportation debates.

Silly me.

A few years back, I was astonished when oil prices had nearly touched $50 per barrel -- which at the time seemed exorbitant. And just over a month ago, I was agog that oil prices had breached $80 a barrel.

Oil price graph through 2007 - 185 I should have saved my breath. Today, US crude oil futures reached nearly $90 per barrel -- a $10 increase in the past month alone. And talk of $100 per barrel oil is becoming increasingly common.

Luckily, I suppose, the thick Alaska crude that gets shipped to the Northwest's refineries tends to be a teensy bit less expensive than the "light sweet crude" that's used as the oil price benchmark. But oil prices throughout the globe tend to rise and fall in tandem--so higher prices on the futures market translate, almost dollar for dollar, to higher prices for the Northwest.

Somehow, though, the recent price spike has gotten virtually no attention in the press. It's a bit weird, really. I mean, we're contemplating massive highway spending throughout metropolitan Cascadia -- billions upon billions of dollars of new roads and bridges. Yet at today's prices, the cost of roads is nothing compared with our spending on oil. So It's a bit of surprise that oil prices aren't at forefront today's transportation debates, rather than being lost in the shuffle.

Sprawl & Transportation

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Comments

Posted by andrew 10/18/2007 08:56 PM

I agree that $90/barrel (and up) means that we should be rethinking our entire transportation strategy (actually, we should have done this long ago). But how much of this most recent increase in price is due to the fall of the US dollar?

Posted by sf 10/19/2007 09:43 AM

In the short run, oil prices go up and down. In the long run, they are only going up--way up. I think the dollar accounts for less than 20% of the most recent rise.

Posted by Clark Williams-Derry 10/19/2007 10:10 AM

Good question, andrew.

The complicated answer is: it's hard to say, since currency & oil don't necessarily move in tandem over the short term, and they're both pretty volatile; so you might have to do complicated math to decompose what's due to rising oil prices, vs. the falling dollar.

The simple answer is: Since Jan 1, the purchasing power of the US dollar, compared with a basket of international currencies, has eroded by about 7 percent. But at the same time, oil's price has increased by about 54 percent. So the falling dollar is only a part of the story of rising prices this year. And possibly a small part. The "security premium" -- that is, the amount of extra money that oil traders are able to command because buyers are nervous about the international situation -- has been super volatile, and may have spiked recently. Plus, some claim that commodity speculation is pushing up prices -- but on this latter point, experts disagree (naturally).

Posted by Clark Williams-Derry 10/19/2007 10:16 AM

sf --

Less than 20% seems right to me.

Posted by Matt Stevenson 10/19/2007 03:35 PM

In my opinion, the fundamental reason oil prices are spiking is because global production has peaked. According to this post on The Oil Drum from September 22, all liquids peaked in July 2006 at 85.5 mbpd. Crude oil peaked May 2005 at 82.09 mbpd. This peak was predicted by Kenneth Deffeyes and was acknowledged in September by former US Energy Secretary Dr James Schlesinger, who said "the battle is over, the peakists have won."

Matthew Simmons also says we've peaked and is now talking about the prospects of $300 per barrel oil. To paraphrase BTO, we aint' seen nothin' yet.

Posted by Clark Williams-Derry 10/20/2007 06:12 AM

Possibly true, Matt.

Then again, I also think that the peak may only be really visible after 4-5 years of hindsight. I was half-convinced in early 2004 that we were already at peak, based on data through 2002 that showed slow growth in global production through the late 1990s, a peak in 2000, then a slight slide in the next 2 years. But 2003 end-of-year data came out -- and my prognostications were all wrong. Between 2002 and 2006, global oil production rose by nearly 10%. (I believe this is all liquids, not conventional crude.)

That said, peak oil is obviously a problem, and will probably create a huge price crunch when it comes. The question in my mind isn't if, it's when. And the recent price runup certainly reflects higher costs for new production, low discovery rates, etc. -- all harbingers of supply limits. It also reflects petro-politics, both global (e.g., wars) and local (e.g., pipeline sabotage), as well as increased domestic oil consumption in oil-exporting countries that are now flush with cash. These are factors that play into, and likely intensify, any geological peak.

Posted by m. leber 10/20/2007 02:33 PM

Do not forget about Gas to Liquids technology, Coal to Liquids technology, along with a series of other alternative fuels including Biocrude.

Virtually every oil company is playing with these technologies now. Once confidence of permanently high oil prices is established, we can look forward to a future of higher, but more stable prices.

Then we can argue about an eventual peak in Natural Gas production (2030?) or coal (2130? 2230?)

Posted by Nic S 10/23/2007 11:38 PM

My question to you all is why is the US auto industry so out of touch with the reality of higher fuel prices. American SUV's don't seem to be getting any smaller, as a matter of fact, the big 3 US auto makers seem to be going backwards in time with bigger vehicles still being produced and smaller vehicles getting short shrift!

I live in Vancouver B.C. and just bought a diesel Smart Car (mercedes) 2007 model. It gets 75 miles to an imperial gallon and probably about 60 miles to an american gallon. We were informed upon purchase that 2008 will be the first year this vehicle is available in the US. One catch though! The engine will no longer be diesel, but gas. And due to economies of German greed, we in Canada will no longer be able to buy the diesel version either.

Smaller, more fuel efficient cars increase proportionately as fuel prices increase here in Canada. Having noticed Sight Lines fuel price comparisons, it made me wonder. Over the past few years we have paid about 15-20% more for fuel and we seem to be decreasing the size of of our vehicles. In the area of LDV (light duty vehicles) that use diesel, europeans have increased their purchases by over 40% in recent years, but the US is still the same as it was 20 years ago. So I am wondering, how difficult will it be, as prices continue to increase for fuel, for americans (and now canadians too), who can no longer afford to drive their current gaz guzzlers, to find and purchase a truly economical vehicle? Is the american auto industry ever going to produce or allow mass importation of more economical vehicles?

Posted by Clark Williams-Derry 10/30/2007 05:25 PM

Nic -
I don't have a good answer -- except that the auto industry isn't alone. After all, car buyers keep buying the big cars the automakers are producing. So apparently, most of us are collaborating in denial. (And I should count myself here too. I put on 8K miles per year in a car that gets barely over 20mpg. And I've got no immediate plans to upgrade -- unfortunately.)

Posted by Morgan Ahouse 10/31/2007 10:09 AM

My take on why we Americans continue purchasing such inefficient vehicles is that our choices are driven by our wealth and the comparative affordability of transportation, especially fuel.

Consider that more new vehicles are purchased by the wealthier segments of the population – for whom the cost of their time far outweighs the other cost components that are part of transportation expenditures. Add to this imbalance the fixed costs of insurance, tabs and payments, and fuel expenses drop near the bottom. For example, I have a friend who grosses about $2 per minute, and this is the lens through which he evaluates most every decision. For some, even driving faster makes financial sense. These are the kind of folk buying new cars every couple few years and selling them down the market.

Yes, it's part denial; it's also part systems information and (I can’t pass the opportunity) another outcome of income inequality.

Posted by MichelleV.P. 10/31/2007 05:28 PM

Good points, all.

But, by golly, Clark ... You, Sightline's research director, count yourself among the deniers? Well, fortunately for you and others, Sightline can put those denials in perspective!

These cool new climate-changing emissions' charts give a great visual image of the high amount of CO2 that's spewed into our air by cars and other fossil fuel burners: More than half of all CO2 emissions! You could start a bright green revolution just by upgrading to a car with better mileage!