Advertisements

Is Cheap Oil changing the World ?

The Hill has produced this article about how is Cheap Oil changing the World starting with America itself.  It could very well be taken for the average american opinion on the subject.  The Hill as per Wikipedia is an American political newspaper based in Washington, D.C. since 1994.  It is published by Capitol Hill Publishing, which is owned by News Communications, Inc. with Jerry Finkelstein as chairman.  

$30 oil is changing the world and Washington .

By Timothy Cama, Julian Hattem and Devin Henry – 04/25/16

Historically low oil prices are changing the debate over energy policy as they create concerns for the domestic industry and threaten the global economic order.

The crash of oil prices began in late 2014, dropping the cost of a barrel below $50 for nearly nine months. It hit a low point below $27 in February and has hovered near $35 ever since. The last time oil cost over $100 per barrel was July 2014.

The plummeting price has caused a decline in the U.S. industry but been a boon for drivers, who are paying around $2 per gallon of gasoline.

That’s completely changed the politics surrounding energy, with the White House and Congress under no pressure to reduce gas prices. . .

And the price drop has devastated local oil communities in North Dakota, Louisiana, Oklahoma and Texas, as well as causing pain among foreign oil producers from Russia to the Middle East, Mexico and Venezuela.

That has complicated foreign affairs for the Obama administration while at the same time easing pressure on hot-button political issues like the Keystone XL oil pipeline and offshore drilling.

Analysts don’t know how long low prices will persist, leaving policymakers and industry groups grappling with what to make of a new normal.

No pressure

Low crude oil prices — and the cheap gasoline that comes with them — have cleared energy policy from the plates of President Obama and Congress.

If anything, current low prices have emboldened the president to pursue a more aggressive environmental agenda in the final years of his term.

The oil industry and its supporters in Congress still have a long wish list. The federal ethanol blending mandate continues to anger oil refiners, and producers would like to tap into stores of oil offshore. The industry is also watching a pipeline safety bill and bracing itself for new federal rules on methane emissions at hydraulic fracturing sites and offshore drilling rigs.

But as long as the voting public has cheap gasoline, there’s little political incentive for a big fight.

The most high-profile example of how low prices are affecting policy and politics came last November, when Obama formally rejected the Keystone pipeline.

More recently, Obama backtracked on plans to open areas off the Atlantic coast to oil and gas drilling, citing the energy market as a factor.

Both actions would have been unthinkable if gasoline prices were hovering between $3 and $4 per gallon, as they did for much of Obama’s presidency.

Obama even floated the idea of adding a $10 fee to every barrel to fund environmentally friendly transportation projects. He pitched that plan this year, he said, because oil prices were low enough to allow him to.

Oil prices are hardly getting mentioned in the presidential campaign.

Before this election cycle, American voters had gotten used to a nearly constant stream of accusations, proposals and promises to lower gas prices, make the country energy independent and stop getting oil from unfriendly countries.

Obama’s economic legacy is getting a boost from the low gas prices, as well. Drivers paid an average of $2.40 for a gallon of gas in 2015, AAA reported, the second lowest figure in a decade. They saved $115 billion compared with 2014.

A disaster for energy states

Thirty-dollar oil has alarmed lawmakers from energy producing states, where drillers are buckling down for an extended lapse in production.

Falling prices have hit North Dakota hard. According to the most recent data, the state produced 35.7 million barrels of oil in December, down 6 percent from the year before. North Dakota shed 6,000 mining and drilling jobs in 2015, a 31 percent decline from December 2014.

But the problem extends to numerous states.

“[In] places like Oklahoma, some parts of Texas, North Dakota, Louisiana — mini-recessions, if not depressions, are underway,” Landrieu said.

“We look more like Saudi Arabia,” Heitkamp said. “We are an oil producing country, and we had hundreds of thousands of oil jobs that have evaporated as a result of the downturn in price.”

Not just in THE US

American oil towns are feeling the squeeze, but it’s nothing like what’s happening overseas.

Major foreign oil producers have less money and new worries about instability.

Saudi Arabia is far from the brink of disaster but might nonetheless be forced to cut back on spending, with unpredictable consequences.

“They have all these really expensive fiscal commitments, and they’ll have to decide which to pull back on,” said Elizabeth Rosenberg, the director of the Center for a New American Security’s energy, economics and security program.

“Who’s going to step in and fill in void?”

It’s a considerable worry for policymakers trying to expand America’s foreign policy.

“When countries have internal, severe budgetary issues that end up affecting how they’re able to deal with their own domestic populations, which is beginning, it’s destabilizing,” said Senate Foreign Relations Committee Chairman Bob Corker (R-Tenn.).

Foreign autocrats at odds with U.S. policy, such as Russian President Vladimir Putin, have for years financed their governments through oil. But now they are confronting the prospect of public unrest.

“By any measure, you look at unemployment, inflation, the worth of the ruble … whatever measure you want to use, [oil prices are] all not good from a Russian perspective,” said James Clapper, the director of national intelligence, in a hearing on Capitol Hill this year.

“The issue will be how does that affect the street, and at what point do people start turning out and demonstrating?” Clapper added.

“Russians are very concerned about that.”

Less wealthy producers such as Iraq, Yemen and Nigeria are all facing major threats from affiliates of al Qaeda, ISIS and other groups. Their efforts to wipe out terrorist strongholds may be hamstrung if they can’t pay for it.

A public backlash is already well underway in Venezuela, where the International Monetary Fund predicts the rate of inflation will top 700 percent this year and where supermarkets routinely run low on food. Most analysts say the country is more likely than not to default on billions of dollars of debt in the next 12 months, speeding up the country’s tailspin.

“It’s like ‘Beyond Thunderdome’ over there,” said Scott Modell, a former CIA officer and current managing director of the consulting firm Rapidan Group.

“They’re terrible managers of the economy, but if crude prices go up, yeah, they stand a much better chance,” Modell added. “I hate to say all of it hinges on that, but a lot of it really does.”

Fallout from a default in Venezuela would quickly spread, underscoring the global nature of even a single country’s financial woes.

For instance, China is already the world’s largest importer of crude oil, so its economic downturn has aided in lowering oil prices. Yet it has also hindered stock markets around the globe and contributed to fears of a new global recession.

“We all sink with this tide; we all rise with this tide together,” said Rosenberg, from the Center for a New American Security.

For some in Washington, there may be a silver lining. Major oil producers such as Venezuela, Russia and Iran have long been hostile to U.S. interests. Anything that ties their hands might leave the U.S. with something to gain.

“The worst petro-states do, by and large, the better off U.S. interests are served and the more likely you’re going to see better diversification of some of these economies or the decline of that kind of nationalistic approach,” said David Goldwyn, a consultant and former State Department international energy affairs coordinator.

“It may be a bumpy ride, but we may all be better off for it.”

Missing OPEC

Despite the perils of plunging oil prices, few mechanisms exist to reshape the market in the short term.

OPEC was historically the easiest way to steady fluctuating oil prices. When crude got too cheap, leaders from Venezuela to the Middle East huddled and regulated their production to make sure that they could profit.

But times have changed. Now, OPEC nations represent just a handful of global oil producers, and many of its members are forced by massive public debts to either keep pumping out their product or cut back on social services.

“The good news is OPEC is no longer able to influence oil prices,” said Robert McNally, the Rapidan Group’s president and a former White House official. “But the bad news is that OPEC is no longer able to control oil prices.

“I think we’re going to learn that we may miss OPEC a little bit.”

In Washington, lawmakers on Capitol Hill say they are similarly short on options to help American producers.

“The Lord blessed the United States with amazing energy resources,” said Rep. Joe Barton (R-Texas). “If we can keep a free market, both domestically and internationally, over time, our energy sector is going to be good.”

For many in Congress, that means opening up markets where they can, but otherwise letting them shake out on their own.

Congress did that in December when it lifted the ban on crude oil exports. The measure is designed to let American oil companies ship their crude overseas, alleviating, in theory, oversupply problems that have plagued domestic prices. Within weeks, producers began their shipments.

But, like Obama’s environmental push, the export debate itself was probably only possible due to the low prices. Members historically have been skittish about lifting the export ban when gasoline prices are high, lest consumers blame them for allowing oil to go overseas while they’re getting burned at the pump.

“You couldn’t have done it, politically, if oil prices had been $100 a barrel,” Barton said. “The oil price gave us a political window, which we took advantage of.”

Crude predictions

In the short term, global oil prices appear unlikely to change.

“This high volume, low price environment is going to be with us at least for the next six months, if not longer,” said Landrieu. “We’ve been successful in producing more here at home, the world economy has softened so the demand has gone down, supply is up so prices are relatively low.”Marcellus_Shale_Gas_Drilling_Tower_1_crop

But low prices won’t last forever. The U.S. Energy Information Administration predicts a slow, steady increase in prices as demand grows and some oil companies go under.

The agency’s latest forecasts, released in March, predicted $45 per barrel of oil by the end of 2017. The most recent long-term outlook, from a year ago, predicted an average price of $76 in 2018 — assuming no major political upheavals. . .

Advertisements