Declining Oil Prices – The Quest for Energy Independence in Jeopardy?

With oil prices falling from their high of $147.27 per barrel in July 2008 to below $40.00 just before Christmas, will this nation forget about developing energy independence?

I personally hope not. I light that OPEC has made 3 cuts in production(1) since oil prices began to tumble, totaling 4.2 million barrels a day. There is the possibility that oil will again approach $100.00 or more per barrel during 2009 – 2010.

A little addressed factor to our current economic dilemma is the rising costs of oil during the period of 2003 – 2008 to the egregious amount of $147.27 per barrel. Our current economic dilemma is commonly linked to a housing bubble bursting, in large part due to high levels of defaulting home mortgage holders with little, or no, mention to the effect high oil prices played in leading to these events.

As oil prices rose, fuel costs increased directly as a result. Increasing fuel costs lead to higher consumer prices in every sector that was affected by transportation costs and/or agricultural production costs in addition to the products that are directly dependent upon petroleum oil products for their production. This had a broad reaching effect in our economy resulting in rising prices for most consumables and durable goods.

Costs for the average consumer maintaining their job and household reached epic levels. People and businesses suffered the higher prices with those of lesser economic stability at the onset of the increase in oil prices hardest hit. As rising prices decreased household savings and removed the buying power of the American consumer, ripples began to reverberate through our economy.

Inflationary concerns brought on by rising prices caused the Federal Reserve to act in inflationary checking moves, by raising interest rates. Increasing Adjustable Rate Mortgage and Credit Card interest rates and decreasing Real Estate values, depleting available equities, further added strain and increased the number of people and businesses in marginal economic stability. Frozen credit markets and decreasing consumer purchases placed many jobs in jeopardy as declining sales limited businesses profitability. Jobs lost by companies scaling back employees in cost cutting moves as inventories increased and sales decreased has eroded consumer purchasing power even further making economic recovery even more difficult.

Our economy is not the only economy that has been affected from the rise in oil prices. Many of the world’s economies have also been affected. If the economic problems faced by this nation were only due to declining housing values and home owners defaulting on their mortgages. The problems would be specific to our economy and would be limited primarily to our nation, not wide spread through the world’s economies. The world has many markets and a decline in one market place would not be catastrophic to the whole of the world’s markets unless an event or pressure affected the majority of markets.

It should be clear that this nation’s economic security depends upon this nation’s ability to hedge against future, unreasonable, price hikes of oil. We, being highly dependent upon imported oil to meet our demand levels for oil related products, place this nation at extreme risk of future economic difficulties should oil prices again rise so dramatically.

This nation must develop a comprehensive plan to achieve energy independence. The plan pursued by T. Boone Pickens “The PickensPlan” is a starting place. However he can not accomplish his plan alone, he has to have the support through the general public. If this nation will not actively pursue energy independence, if the American people do not actively pursue our government to ensure that occurrence, if this nation does not learn from our current situation, we will be doomed to repeat it at some point in the future.

It is time to speak up America. We must make our voices be heard to congress and the incoming administration. We must insist on a comprehensive energy plan. We must insist on it now and continue and commit to the hard road of developing energy independence.

This is especially true given oil prices have fallen so dramatically from their peak levels this last July. Do not become mislead by the rate of decline of the oil prices during one of the most unprecedented economic declines of this nation’s history causing Trillions of dollars to be infused into our economy by our government and other governments into their economies. The rapid decline of oil prices underscores the part that high oil prices played in the world’s current economic situation.

If we do not learn from this lesson and act now to ensure the same does not happen to this nation again. We will continually face the potential to have the same happen again.


References:
1) Recent OPEC oil production cuts:
10 Sept 2008: 500,000 barrels per day.
24 Oct 2008: 1.5 million barrels per day.
17 Dec 2008: 2.2 million barrels per day. “The largest production cut, ever.”
Total production cuts of 4.2 million barrels since oil prices slid from their peak of $147.27 a barrel to establish OPEC’s target of $70.00 per barrel or greater.