JUST when some of the world’s oil and gas hotspots were threatening to go up in flames a couple of weeks ago, lo and behold, the price of oil started to fall. Whatever the attractions of high prices to oil companies, the rest of us should breathe a small sigh of relief.
As I have previously pointed out, the biggest losers from high prices are not poor souls who have to pay an extra 20 quid to fill their 4x4s, but those impoverished countries of the world which are not oil producers and must therefore devote an even higher proportion of their meagre resources to the importation of oil just to keep their economies going.
That will not exactly be a doddle for them at $100 a barrel, but at least it’s better than $150.
But let’s get back to this curious point that quite substantial international upheavals do not necessarily lead to higher prices. The Russians were bombing pipelines in Georgia, there were the usual infernos in the oil-producing regions of Nigeria and Iran was cutting off supplies.
But still the oil price continued to come down – which suggests to me that there were other, less tangible, forces at work in driving it so high in the first place.
These forces can be summarised as gross speculation – most of it centred around the New York stock exchange. The case for regulating that market should not be lost sight of even though the immediate price pressure might have subsided.
It is reasonable to conclude that, at its peak, about one-third of the price per barrel came from paper trading which bore no relationship to the real value of the commodity or, indeed, to any lack of availability within it.
This is a market that has got out of control and needs regulation. The impetus for some such measure could come from the US presidential campaign. Everyone is looking for something plausible to say as the American right to cheap oil, which most of the population seem to believe is enshrined in the constitution, comes under threat as never before with pump prices at $4 a gallon.
Another response will certainly be to weaken resistance to exploring for oil in places that have previously been safeguarded as no-go areas, particularly offshore. From my perspective, this does not seem unreasonable since our own experience of offshore exploration and production scarcely bears out the environmentalists’ claims of maritime doomsday.
However, the ban on offshore drilling had been bought into big-style by the Democrats as a vote winner among environmentalists. It was a policy on which it was possible to create clear blue water between Barack Obama and John McCain. As standard bearer for the Republicans, the party of big oil, McCain all along favoured offshore drilling, and also expansion of the civil nuclear programme.
What happened around the beginning of August was that polling started to show that energy prices represent the biggest single campaign issue – and that McCain’s package was winning the argument. So Obama rapidly changed position. While not exactly in favour of offshore drilling, he has now expressed willingness to negotiate with Congress over it. In other words, this is no longer a firm policy line drawn on the ocean bed.
Obama also came out in favour of dipping into the National Petroleum Reserves – which many people believe to be far too large – in order to achieve an immediate cut in prices. Before this became necessary, the price started to fall anyway. But acquiescence in such a pragmatic piece of short-termism, however sensible, clearly signalled that the Democrats were coming to see energy as the issue that could well derail them.
Indeed, the message is inescapable, if not particularly uplifting – and it applies here as much as in the US. Quite simply, it is that public altruism – towards the environment or anything else – quickly goes out the window when people believe that their own immediate self-interest is under threat.
It is a lesson that environmentalists should either adapt to, by being a bit more reasonable in their demands, or be swept away in the tide, since few politicians are going to walk into elections with suicide notes hanging round their necks.
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