I love high oil prices!!!
I am regular reader of Paul Monica's views...Only reason for me to come to money.cnn.com. With reference to article posted at http://money.cnn.com/2009/10/20/markets/thebuzz/index.htm.
I know lot of people will go against me here on my stance......But I am in strong favor of oil price hike. Please be patient to listen what I am trying to say. Trust me I am not someone who is speculating or betting on oil stocks. I am researcher working at National Center for Supercomputing Applications and strong follower of commodity prices and its impact. Here are my reasons why I would love to see oil hovering over $4 gallon and why its strongly in favor of US economy and overall well being.
1) $2 or $3 gallon oil never enough to make people realize all the sins attached to oil dependence.
Close to $4 gallon we start thinking about alternative energy investments, changing urban design, public transportation, making US self dependent. I was seeing more such awareness when prices were $148, I've stopped seeing these articles anymore on money.cnn.com.
2) High oil prices is what destroyed our whole auto industry...and why? Because our auto industry was never prepared for such situation.....global markets have started investing in efficient energy paradigm a decade ago. I see cars running on Natural Gas in India and China why dont I see them in US when US is largest producer of Natural Gas. It has sufficient natural gas to stop it to use single drop of oil. I am not saying natural gas is only answer...I am saying oil dependent auto industry wont sustain for long time...People will demand for more more energy efficient cars...we want our auto industry adaptable enough to answer changing needs. US auto industry destruction was for good, now we will see birth of auto industry in US which will be much more competitive.
3) Here in US we pay much less for gasoline than what others pay in Europe and Asia. In europe its $8 gallon and around $5 in Asia. Hence they are much ahead of US in terms of energy efficient technology. There you see public transport running on electric energy or batteries. Poorest country like india has all electified railway lines. They long back stopped using diesel rail engines because rail industry was not able to compete with other transportation medium. Europe has started pusing battery running buses for public transport. China and India has pushed strict laws to use natural gas based public vehicles for dense metro areas to control pollution and bring down energy prices. They have low cost technology and expertise to convert gasoline based car/heavy vehicle to natrual gas vehicle. We dont have it here! They have large number of gas stations equipped to deliver natural gas. We dont have it here!
4) Whole globe (other than US) knows oil can kill them...whatever they do still they need more and more oil...they are doing best to change technologies and looking ahead towards non oil based enegery resources. In US we are much behind.
5) Its true there is supply and demand side of story affecting oil prices...Supply and demand affecting oil prices more significantly than wall street speculation. Last price shock to $148 barrel was more due to unexpected strong demand from emerging markets like Brazil, Russia, India and China (Bric nations). Wall street speculators only brings slight bias towards more high or more low but they cannt affect fundametals. Demand will keep increasing unless we give away oil habit.
6) There was significant drop in demand which lead us to $32 barrel due to production cut by several factories throughout the gloabe due to recession or anticipation of mass scale depression. We didnt cut our drive doesnt mean all different type s of consumers were not cutting oil consumption. Its multifacted, a Furniture Manufacturing company cutting production due to drop in demand of furniture from all banks ironically affects oil prices. Low furniture production leads to low transportation of lumber and low delivery of final furnished products brings down oil demand hence we saw oil close to $32. Now banks and all other hit sectores have started showing profits, this itself is sufficient to bring back oil price demand. Already BRIC nations are on track to growth, they are the ones who are controlling demand more than US.
7) There is strong correlation between low dollar and high oil prices. Both goes together. If oil prices are high, we have high trade deficit and brings down value of dollar. If dollars goes low due to other reasons...oil priced in dollar on mercantile exchanges goes higher automatically. Thats what going on in last 6 months. I dont see dollar raising anytime in future...so we will have higher prices..Trust me, low dollar is in our favor....its bringing back export business...it will bring back jobs and it will make US more competitive infront of emerging markets. This is the game China is playing since last two decades. From last two years Indian goverment has also started attempts to depriciate their currency to increase export. We need low dollar and high oil prices.
In summary...we need higher oil prices due to all reasons I mentioned above. It will help us in long term. From last 6 months we have seen same thing, $32 barrel seems like depression and $80 barrel now giving us feeling of recovery!!!