The Right Price for Oil

I had lunch with a friend yesterday, who is now investing in drilling for oil in fields that were obsolete when oil was $14.35, but which today pay out nicely.  I told him that I increasingly had the point of view of the book “The Prize,” i.e., that oil drove everything else in the world: war, peace, the cost of all goods, inflation, foreign policy, the price of gold, strength of the dollar, all politics.

He seemed to agree.

Now, keep in mind, I am not quite there yet.  Just 80%.

Tonight there was an excellent two hour Frontline piece on U.S. and global energy issues.  My friend Eric Pooley did a fine job providing the “reality line” woven in between all of the lobbyist BS interviewer Martin Smith elicited from his many subjects.  Among them: John Dingell, the most hopeless politician in the energy discussion (yes, he’s from Michigan); the three U.S. car chiefs, the ever-embarrassing CEO of ExxonMobil (who refused to meet with top shareholders, period), the VP of flack at Exxon who just lied, lied, and lied about the company’s behavior, and so on.

The Japanese looked quite smart.

I was left with a few thoughts after all this, and the conversations we’ve had at Future in Review over the last few years:

1. Detroit is hopeless, and will block all progress.

2. Same for the Bush administration, which uses the EPA to avoid improving CAFE standards

3. Same for the EPA, despite their staff scientists’ continued efforts to bring science to decision-making (Steven Johnson will find a special place in Hades for his time in DC)

4. Same for ExxonMobil, for paying for Fake Science, Deniers of climate crisis, and basic obstructionism.

On the other hand, I had a chance to re-view a Charlie Rose interview with my friend Amory Lovins, head of the Rocky Mountain Institute, on the issue of energy independence just a few nights ago, and he continues to believe that this is achieveable, given the will.

Ah, the will.

In a word, that’s the problem.  The Frontline program had a fine woman researcher from Rice University on, who nailed it at the end: all of the players have been acting as if their own town or company were all that mattered, rather than the country or the planet.

Finally, returning to that lunch conversation, I suggested to my friend that the ultimate good price for oil would be consistently high, to encourage real long-term investment in alternatives.  I told him that the real price today seemed to be around $80, based on supply and demand (and not on options traders).  And, while this may be true at current levels of economic growth and operations, it is not hard to imagine that the economic slowdowns essentially caused by greedy oil pricing (the subject of a future blog) could lead to lower pricing.

Finally, I suggested that pricing at around $45 per bbl might be just perfect: enough to provide profits for everyone in the business, including alternative energy businesses, while quickly eliminating the current political regimes in power in Russia, Iran and Venezuela.  Now that would be the right price for oil.