At 72 dollars a barrel oil today sits at a dramatic, 50% lower level than last year’s high of 147. However, 147 dollar oil is not a price that either you or I ever experienced. It was a brief moment in time over several trading days, and then it was gone. The relevant price of oil in 2008 was of course the average for the whole year: 99 dollars. Sorry, if you thought you were living in a world of 150 dollar oil last year. You weren’t.
What’s astonishing therefore is that with national unemployment just below 10% and surely to go higher, oil this Summer has only been 25-35% lower than last year’s average. Oil at 65-75 is bad enough with 10% unemployment. When you consider the broader measure of unemployment however, now above 16%, oil prices in this range are a shocker.
This has left me wondering of late: what is the energy policy of the United States? I frankly have no idea. It’s never been articulated. It’s intriguing that the collective emotional firepower of the country is currently propelled in the direction of health care policy. Given that a number of papers and essays are finally being produced that suggest the advance in the price of oil from 2007’s average of 72.00 to 2008’s average of 99.00 played a key role in the triggering of the financial crisis, one would think there’d be some interest.
My guess is that Washington won’t deal with the issue until we get back to 100 a barrel. That could be quite nasty in the first half of 2010, should unemployment still be climbing. Additionally, now that the government has taken steps to control commodity trading, it will be harder next time to blame traders at the NYMEX or shadowy offshore “manipulators.” My sense is that Energy Secretary Chu, who has spent his entire term so far hidden away from any public questioning, is not prepared to answer the simplest of questions: Mr Secretary, what is the energy policy of the United States?
-Gregor
Further Reading | Average annual spot prices for oil, via EIA Washington. | Causes and Consequences of the Oil Shock of 2007-2008 (.pdf): James Hamilton
