Cheaper gas nice, but it may prove costly in the long run
Low oil prices are taking a toll on fuel-efficiency trends
With gasoline prices so low, it’s no surprise U.S. motorists are driving a lot more this summer. In all, more than 43 million Americans planned to travel over the Independence Day weekend, the highest volume ever for the holiday, AAA estimates.
For those on the road, the national average price for a gallon of gasoline was $2.27, a price not seen on the holiday since 2005, according to AAA. By Friday, it had fallen by another couple of pennies.
Without a doubt, for most of us, fueling up for much less has been one of the big advantages of the oil price slump.
But what’s good for the driver isn’t necessarily a sign of energy stability for the U.S. and other countries in the years ahead, as the International Energy Agency reminds us.
In a new report, IEA warns that the rundown in oil prices is taking its toll on fuel-efficiency trends.
“Consumers have moved away from energy-efficient vehicles that they favored when oil prices were higher,” said the Paris-based agency, which monitors global energy markets.
In the U.S., sales of sport-utility vehicles are 21⁄ times higher 2 than those of cars and other lightduty vehicles, IEA said. In China, SUVs are selling at four times the rate of smaller vehicles.
Fuel efficiency isn’t the only casualty of lower oil prices. Much has been reported about deep cuts in capital expenditures by oil companies in the U.S. and else- where, a figure the IEA puts at a combined $300 billion in 2015 and 2016 and calls an “unprecedented downturn” in spending by the industry.
“North America accounted for about half the drop,” the report says. “If prices remain at current levels, a significant rebound appears unlikely in 2017.”
As of Monday, the futures price for WTI, the U.S. benchmark for crude oil, was $44.51 per barrel, down more than $4 from a week earlier and more than $7 from a year before. Since June 2014, when WTI futures traded at $107.26 per barrel, the price has dropped by more than 58%.
While U.S. oil production has enjoyed a resurgence in the past few years, because of technologies that reached previously untapped shale reserves, that output has tapered off in response to low oil prices, and raising it again will be difficult at prevailing prices.
Perhaps even more significant is the advantage the situation provides to oil producers in the Middle East. In that politically unstable region, oil supply has reached historically high levels, exceeding 31 million barrels a day, IEA data shows.
“The region now accounts for 35% of global oil supplies, the highest level since 1975,” IEA said. “The growth in production, from Saudi Arabia, Iraq and Iran highlights the fact that low-cost producers in the Middle East remain central to oil markets.”
That’s something to keep in mind the next time we fill the tank so cheaply.
“Consumers have moved away from energyefficient vehicles that they favored when oil prices were higher.” The International Energy Agency