Saturday, November 10

The Price of Oil

What's the price?If you have been watching spot market prices you might say the price of oil is approaching $100 per barrel. However, as someone interested in economics I can assure you that the price of oil is far lower than it's cost.

Wait, how can the price of something be lower than it's cost?

Simple, there are often hidden costs attached to products, or the use or manufacture of those products, that are not reflected in the purchase price. For example, consider a can of Raid. It's price might only be several dollars, but there is an environmental cost which is hard to measure. If someone in your family eventually gets sick because of the chemicals, the hidden costs are astronomical.

Unfortunately, we all play this game of russian roulette every day. We burn gasoline every day, spewing exhaust, while we drive to and from work. We send people underground to dig for coal so that we can light our homes and watch television all day long. We generally buy agricultural products that have been grown with pesticides, chemical fertilizers and so forth.

Now, don't get me wrong. I'm not against technology and I don't regret advancements brought by science. That isn't where I'm going with this at all.

So, let me ask you again, what is the price of oil?

As well as the $100 per barrel, maybe less and maybe more, there are other costs we will be paying. Can you name one? Although it has become quite political in some areas, there is the potential cost of global warming to heap on top of this. To many people this cost is simply astronomical. You don't have to be an environut or even a tree hugger to understand that prices and costs are not equal.

Oil, especially cheap oil, with most of it's costs hidden from our view, is really the fuel that has allowed the world to flourish. Cheap and convenient, this portable energy has given us all a lot of freedom. We've become addicted to it, to the point that we can't even imagine a lifestyle that doesn't revolve around it. Until very recently, at least.

Finally, with oil becoming relatively expensive, we are beginning to seriously consider alternatives. It's about time!

It is getting harder and harder for large corporations, earning billions of dollars every year, to convince us that there are no cost effective alternatives. Wind power, solar power, bio-fuels, hybrid cars, LED light bulbs and other technologies are all starting to get serious attention. I'll say it again, it's about time!

Even if you are someone that has been swayed by the corporate sponsored messages that suggest global warming is a myth, surely you have to realize that clean alternatives to oil are a good thing? Surely the production of less chemical byproducts and the production of less gaseous waste is a good thing? You don't have to be a tree hugger to see this, do you?

If you aren't convinced by issues such as global warming, as many right wing people aren't, let me put the price of oil into terms that might reach you. What do you think is the source of funding for regimes in the Middle East? Nice going Einstein, depend on people that hate you and give them the money they need to wage war with you. No offence, but that is stupid. For you right wing folks who need a reason other than the environment, you can get to work calculating the costs of oil based on military costs, loss of life and strife in the world.

Anyway, with what might be good reasons to convince both left and right, let me get back on topic.

The price of oil, without even considering it's true total cost, is high enough to start changing the world for the better. There are hybrid cars appearing on the market. There are flexible solar panels being created by something similar to a giant inkjet printer. There are sources of ethanol other than corn. Not too long ago a white light LED was finally invented.

We have the technologies. People are starting to produce them in quantity. We are finally going to be able to buy them because they are priced competitively. This is what is known as a tipping point. Once we really start buying these products, so that economies of scale can be achieved, the prices will start dropping. Incredible amounts of money will be spent researching newer and better products as well as newer and better ways to manufacture them.

This new wave of green technologies will suddenly develop enough inertia to drive out the oil based technologies of today. Will it happen in five years, a decade, or a generation? I don't know the answer to that, but I will say it again, it's about time!

Frugal Guy said...
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8 comments:

Anonymous said...

I am for Hybrids. Speaking of oil Bush was the C.E.O. of an oil company in the 80s. He has tons of oil stocks and businesses. He is making a killing in oil. 20 years ago it was only $10.00 a barrel and the oil industry was starving. Someone has to make money some how. Some experts have said the oil is in the ground to cool the earth and that it's removal is causing global warming by increasing ocean water temps. We can reduce this with better ecological practices. Smog equipment vehicles reduce emissions into water vapor. We can save the earth together but, it will take work on everyone's part. Some say the moon was once like earth and it suffered global warming. Have a good week. Annette

Anonymous said...

Uhhh......anybody ever hear of Occidental Petroleum? If you're going to bash President Bush for having involvement in the oil industry, be fair and include Mister "Inconvenient Al" Gore. And those battery packs in your precious Prius are going to need replacement some day - after a finite number of rechargings from (yep, you guessed it) an electrical generation station very likely fired by COAL. When that happens, pay close attention to what those battery packs you are now discarding are made of. It's not pretty.

You can sit in your mud hut and eat nuts and grass while you shiver. The climate is changing, but we can't do Thing One to stop that, and it is the height of arrogance to presume that mere mortal humans can!

Frugal Guy said...

Okay, okay, let's not get all political here...

I know I brought it up, but I was only looking for angles that both left and right would understand, instead of implicating any particular administration.

However, I do have to say that it's the height of arrogance to say that life on the planet can't affect the planet.

Did you stop to think where our oxygen comes from? Life.

Anonymous said...

I did not bash Bush, all I said was he has to make a living too and $10.00 a a barrel was not cutting it. Things oxidize yes. We can make vehicles that run on oxygen too and water. IT is amazing what we could all do. Good luck. I am not here to bash but, worry about the world's future. IT is up to all of us. Annette I am no brain surgeon but, I am no moron either. I am somewhere in the middle ha ha ha Bash my thoughts I can take it ha ha

Anonymous said...

Frugal guy brought up some good points. But did not mention the only real and feasible answer, nuke power. You all want to be like europe but when that is brought up...silence, check how France gets its power.
Its not about global warming it is about how you can control your fellow americans.BTW you forgot to menton Cheney or Haliburton.

Frugal Guy said...

Hi Anon,

Actually, nuclear power is something that doesn't cause me to blink.

It, like any power source, has it's issues and waste product creation, but with the need for power continuing to increase it may just be out only viable alternative.

However, again, with the price of oil so high, it is certainly possible for consumers to start to adopt new technologies.

It seems to me, that while green is always espoused, there really haven't been many viable alternatives available to the consumer. After all, we are creatures of convenience. For example, if we can't refill our cars at the local gas stations, then what good are they?

On the other hand, when (or if) cars eventually plug in to a regular outlet, or when (or if) most cars are modified to run on either gasoline or ethanol, then these options are at least available for the consumer to choose.

Anyway, keep in mind that going green does not mean some pie in the sky idealism is required. It just means having economically realistic choices available for consumers to utilize. If and when that does happen, we all know what the result will be...

And that has absolutely nothing to do with politics.

Anonymous said...

Hey did all of you hear oil will go up to $200.00 a barrel very soon? What should we do???

Anonymous said...

Walk and eat less red meat to stop Global warming they say. Happy Thanksgiving!!!