The price of oil will fall in the future. History shows it always has.
At a time when so many are worried about the impact of high oil prices on the auto industry, I’m worried about the opposite effect.
What if, just as the industry is pouring billions into hybrids, clean diesels, fuel cells and other fuel-saving technologies, the price of oil slides back down to, say, $30 a barrel?
Will consumers happily pay for this costly technology if gasoline suddenly drops to $1.50 a gallon in the U.S.?
Everyone tells me that will never happen. But I’ve got history on my side.
Over the last century, the price of oil fluctuated wildly in times of war or political unrest. After the crisis passed, the price always settled back down again. It’s going to happen this time, too.
You need look no further than Chevron’s recent announcement that it has discovered a vast new oil field beneath the deep waters of the Gulf of Mexico. The oil company claims it could boost U.S. reserves as much as 50%.
Ah, but you’re ignoring China, India and the rest of the developing world’s growing appetite for oil, I’m told. That growing demand will keep the price high no matter what, some say.
I agree the price of oil will settle down somewhat higher than previous averages, but it still will drop dramatically compared with some of the peaks we’ve seen recently.
Here’s some of that history. The price soared at the outbreak of WWII in Europe, then slid for nearly 30 years after the war. In the 1970s, two oil crises pushed the cost from $4 a barrel to $28. Remember, those prices are the equivalent of $17 and $73 in 2006 dollars, respectively.
As recently as 1999, the price of oil was only $17 a barrel. What pushed it to around $70 today? The terrorist attacks of 9/11; the war in Iraq; the attempt to blow up Saudi Arabia’s largest pumping station; confrontations with Iran; and the billions of dollars speculators are pouring into the oil market. All that and the increasing demand for oil.
But clearly it’s the war, political unrest and speculation that primarily have pushed up the price four-fold in only seven years. History shows that won’t last.
It may take more than a decade for prices to settle down again. But in automotive terms, that’s only a few design cycles away.
That’s why the auto industry needs to protect its investment in fuel-saving technologies by developing an energy plan to prevent fuel prices from plummeting too low – especially in the U.S.
Perhaps we need a mandate to blend increasing amounts of domestic sources of alternative fuels into gasoline and diesel as the price of petroleum drops.
Beware. If fuel prices do drop, we’ll see car buyers flocking back to the biggest, most powerful vehicles they can get, while fuel-sipping autos rot on the lot.
John McElroy is editorial director of Blue Sky Productions and producer of “Autoline Detroit” for WTVS-Channel 56, Detroit, and Speed Channel.