After oil prices plummeted, I went on the record saying I thought they’d be back above $70 per barrel by the end of 2015.
The year isn’t over yet, but my prediction isn’t looking good.
I thought worldwide demand would go up — and it has. The latest from the International Energy Agency shows demand is already up about 1.7 million barrels a day.
I thought supply from the United States would go down — and it has. Companies have been laying down rigs, and U.S. production has dropped by 500,000 barrels a day since June.
So where’d I go wrong? One word: OPEC.
I thought supply from the Organization of the Petroleum Exporting Countries — and specifically Saudi Arabia — would also go down. You can’t get rich selling anything for less than it costs to maintain the country. I expected they would at least maintain, if not cut, production to command a better price.
That didn’t happen. Rather than cutting back or holding steady, OPEC drove prices even lower as Saudi Arabia has increased production by almost a million barrels a day.
I erred in underestimating OPEC’s determination to keep the flow of oil under their control. The OPEC cartel is controlled by leaders whose top priority isn’t to make money for stockholders, it’s keeping themselves in power.
Even knowing that, I didn’t expect to see Saudi Arabia, Qatar, Kuwait and the United Arab Emirates all working to increase their market share by bringing new production online over the next few years.
They won’t be alone going forward. Iran will become an even bigger factor in the next few years now that the removal of sanctions allows them access to more of the world market. And Iraq has some of the world’s largest reserves. If the country ever settles down, the Iraqis will have a major say in world prices.
When it comes to the price of oil, which remains in the mid-forties, all of that gets taken into account. What doesn’t get taken into account is that the nations of OPEC have a long-term strategy, America doesn’t. And, on top of all that, we have Russia moving into Syria. That will invariably add a new dimension to the Middle East energy equation.
Even as OPEC loses money, they are growing their market share. When prices rise, they’ll rake in profits while the competition scrambles to catch up. It’s also a geopolitical move. The world depends on oil, and they’ve got their hands on the spigot.
The United States, however, is taking a short-term view. Our economy is powered by cheap energy, and $2 gasoline makes a lot of folks happy. We know it’ll hurt when prices go back up — which they will — but the American public has pretty much made energy a back-burner issue. Things are good today, so we’d prefer to wait until tomorrow to worry about the future.
We should be using this opportunity to debate, map out and plan for the future, and start putting a comprehensive, cohesive strategy for America to meet its energy needs without depending on OPEC’s influence over oil or natural gas prices.
The lack of momentum for a long-term energy plan isn’t surprising. There has been a gaping hole in American thinking about energy since the 1970’s. The Nixon, Ford, Carter, Reagan, H.W. Bush, Clinton, W. Bush, and Obama Administrations have all talked about the importance of energy, then failed to produce a plan.
The United States has the largest total energy reserves in the world. If we want to keep electricity, oil and natural gas prices permanently low, we have to begin working now.
Even a casual student of World War II understands the Normandy invasion began years in advance. The United States didn’t just need to recruit and train troops. They needed to be clothed and equipped. Planners began building mining capacity for iron needed to make enough ships and tanks, and coal to run the smelters. They trained welders and line workers — men and women — to build the planes and trucks.
D-Day was only possible because we started planning for it before we were at war with Germany or Japan — when we were at peace.
The future of energy is the modern equivalent. We should be using this time to plan our strategy for producing, importing and exporting energy. We should develop our rail, pipeline and electrical networks to expand and strengthen our ability to transport energy. And form a long-term agreement with our neighbors to the north and south to take advantage of energy know-how and resources.
This administration has run out the clock for a long-term energy plan. The ball is now in the courts of the candidates for president in both parties. They need to stop bickering about how they look, and stop bragging about what they did in their past careers. The candidates should take a good hard look at energy as a centerpiece of their economic policy and tell us what their plan is.