How America can Turn Low Oil Prices to Long Term Advantage

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abarrelfull wrote on 10 Dec 2014 10:07
Tags: price usa

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A low oil price is a wonderful opportunity in the short term, as it releases money to be spent on other things and improves the current accounts of importing countries. In my opinion, it can also be turned into a long term opportunity.

Firstly the lack of production growth in the short term is actually a blessing. Infrastructure that was not sufficient can be developed. Quality of life issues that impact production regions, such as housing and public services, can be dealt with. Issues over the environment and regulation can also be straightened out. Oil companies will focus on improving cost efficiency and will no doubt develop better technologies, when under cost pressure. When production growth resumes again, it will be much more sustainable.

Only the oil companies are losers from the current situation, not society as a whole. This is why this idea stinks. Throwing free trade out the window, to help a small number of companies is a really bad idea

If the USA wants to wean itself off imported oil, it need to increase production AND reduce consumption. The best way to reduce consumption is to tax fuel at the pump. Given that pump prices have fallen so much, this is a very opportune time to make such a move. As it will reduce consumption in the medium term, and because the USA is the world's largest consumer, oil prices will be marginally lower in the long term, meaning that some of the tax will be paid for by oil producers.

Meanwhile, giving permission to Keystone XL, would improve the supply situation in the medium term, and a government that increases taxes on fuel, can tell the environmentalist to butt out on Keystone, which is in America's interests.

So you reduce CO2 emissions and increase energy security at the same time. A perfect win. It will not happen of course, but that doesn't mean that it shouldn't.