Short-term Savings May Lead to Long-term Problems

Wednesday, October 14, 2009

Parade magazine had an interesting article titled "Who Profited From Oil Prices?" in the January 25, 2009 edition.

A more appropriate title might have been "Who Profited from Lower Oil Prices?" as the story indicated that the winners were consumers who benefited from a $2/gallon drop in gasoline prices for annual savings around $282 billion and hedge fund managers who shorted oil.

The losers were OPEC and other major producers who saw their revenues decline which could cause "political and economic turbulence" in Venezuela, Russia and Iran.

While oil companies lost revenue as prices declined they also saw their costs for oil field equipment and supplies drop as well. Oil producing states that earn revenue from production taxes saw their income slashed. Alaska projects a 7% drop in oil revenues and Louisiana forecasts a $2 billion budget shortfall by 2010.

Green technology suffered as well as lower oil prices made solar and wind power less attractive. T. Boone Pickens' green-tech fund lost more than $1 billion.

Another factor is the fluctuation in oil prices which drives planners nuts. National, state, and company budgets and programs suffer with price volatility resulting in delays and cancellation of programs.

A short-term mentality affects the marketplace and causes delays in development of alternative energy supplies. Consumers may benefit from short-term savings but project delays will produce long-lasting impacts and higher energy prices.

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