The next big oil-price push

With the 30% fall in the price of oil to US$50 a barrel comes the inevitable global ideological free for all over the causes, impacts and general significance of the decline. The scale of the decline pretty much puts peak oil theorists out of commission, especially since the real price of oil in constant dollars is now lower than it was through much of the 1980s–hardly what you would expect in a world allegedly heading into an oil supply crisis.

But new claimants to standing in the debate over oil are ready to fill the void left by the peakers. The latest to appear made the front page of The Wall Street Journal yesterday. “High Prices Prod Developed World to Curb Oil Use,” said the headline. Citing the latest statistics on world oil consumption through 2006, the story said that as oil soared to $77 a barrel last year demand fell in the 30 major OECD developed countries. The fall was slight– about 0.6%, to 49-million barrels a day from 49,294 million in 2005. While small, the decline looks like it could be the first drop in western oil demand in two decades.

Ready to seize on this development are those who want to use high taxes to curb oil use. Look, they will say, at what happened in 2006. When prices were
high, oil demand fell. Conclusion: We need to keep prices high, via taxes and emissions trading schemes and whatever, to artificially drive the price of oil products up so as to curb demand and reduce greenhouse gas emissions.

This idea turned up in the Journal piece. A couple of economists speculated that oil at $77 and gasoline at $3 a gallon had triggered a “tipping point” at which consumers finally started to curb oil demand. It’s a lesson, suggested the Journal, that might fit right in with the current energy gestalt sweeping Washington and the world. In his state of the union address next week, President Bush is expected to “expand on a call he issued last year for the country to end its ‘addiction’ to oil.” Will high prices do the trick?

National Post