It’s always amusing to return to the prognostications of the past. The Shock! Surprise! Horror! headlines of crises past seem remarkably obvious given the prescience that hindsight always brings. One wonders, for instance, how the (now) glaringly obvious warnings of 2007’s U.S. housing debt bubble could only be seen by unheeded UCLA economist Ed Leamer and a few other lonely voices from the hinterland. More recently, how the heck did the Islamic State of Iraq and the Levant go from a non-entity to the greatest threat to world peace since Saddam Hussein in but a couple of weeks? Where was the supposedly all-knowing, all-seeing eyes of the Western intelligence community while al-Qaeda in Iraq was transforming into the even more radical ISIL? Or our seemingly equally inept reporting community that now trumpets their atrocities so assiduously?
More pertinent to an automotive columnist, how did so many experts with access to so much data fail to anticipate the recent precipitous drop in crude oil pricing, every single past report I Googled detailing an inexorable march to $150 US — and even $200! — a barrel, the fallout from which always promised to be economic ruin and the death of the automobile industry as we know it. Yet, as I write this, West Texas Intermediate is barely above $47 a barrel, analysts, seemingly having forgotten their overheated predictions of the past, now saying that cheap oil is here to stay! How in h-e-double-hockey-sticks did they miss what experts are now saying is a two million barrel a day glut on the international oil market?
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A row of oil pumps work at sunset Sept. 11, 2013, in the desert oil fields of Sakhir, Bahrain.
Hasan Jamali, AP Photo
Read more: Motor Mouth: Not everyone is rejoicing falling gas prices
Worse yet, according to all the reports that I’ve read, the cause of this “surprising” decline is the rapid development of American shale oil fields. It is, the economic tomes state with authority, a simple case of over-supply. The Bakken formation in North Dakota and other fields in the Midwest have seen the United States’ return as an oil-producing force — up from six million barrels a day to nine — and it’s not only the size of the glut but also the rapidity with which this excess crude has come online that accounts for the markets being caught flat-footed. Oh, worldwide geo-political collusion — Saudi Arabia and the U.S. are punishing Russia, claim most pundits; Iran is the real target, says Conrad Black — gives the conspiracy theorists something to fret about but it doesn’t take a degree in economics to figure out that the oil pricing had nowhere to go but down.
The problem with all this shock and surprise is that rather than sudden unbalancing in market forces being portrayed in the media, the demand part of the equation, at least in the United States, has been changing for the last decade. Indeed, the amount of gasoline consumed by North Americans has been declining for quite some time now. According to Michael Sivak of the University of Michigan’s Transportation Research Institute, the amount of fuel consumed per capita by North Americans has been decreasing (down some 16% since 2004, in fact, mainly because we’re driving less and there are fewer cars per household). Even in absolute terms, the total fuel consumed in the U.S. peaked in 2007 (at 176.2 billion US gallons) and has declined every year since (168.4 billion US gallons in 2012). And, while the worldwide consumption of petroleum has edged up in recent years — mainly thanks to the incredibly rapid growth of automobile sales in China — America is still the number one consumer of refined petroleum in the world (almost 20% of the world’s consumption, says the Central Intelligence Agency, and around 40% of the world’s gasoline). As America goes — at least in terms of fuel pricing, it seems — so goes the world, and right now the world’s biggest consumer of petroleum is producing more and consuming less.
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Gas prices plummeted across the country this year thanks in large part to a crash oil prices. But is cheap gas here to stay?
Joe Raedle, Getty Images
Of course, this has brought along with it all manner of bounty. For American nationalists, not being beholden to foreign petro-states is always a bonus. Most Canadians will benefit from reduced transportation costs, both because business can offer lower pricing on mass transported goods and consumers have a few more dollars to spend.
Also read: The biggest shock of 2014? Cheap gas
The one area of concern — one that I am surprised we’re not hearing more about considering the environmental lobby’s power in the media — is how it’s going to affect the “greening” of our automobiles. As higher prices tend to discourage consumption, it’s no great surprise that sales of pickup trucks are increasing — the light truck segment accounted for almost 60 % of Canadian auto sales this year — and the interest in electric vehicles, hybrids and other alternative powertrains is waning. Indeed, Sivak notes that, in the last three months, the average fuel consumption of new vehicles purchased in the U.S. has increased significantly, reversing a trend of almost steady declines since 2007.
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2016 Nissan Titan
Derek McNaughton, Driving
More importantly, without a return to higher prices — either by the supply/demand equation taking yet another abrupt turn or, God forbid, carbon taxes — the implementation of governmental edicts toward reduced automobile fuel consumption, like U.S. President Barack Obama’s call for 54.5 mpg by 2025, will be difficult to implement. As Dennis DesRosiers, president of DesRosiers Automotive Consultants, so eloquently puts it, “the government may mandate what the automakers sell, but not what consumers buy.” Cheap gas could indeed prove an economy-boosting cost savings, but not if we all go back to buying ginormous SUVs and gas-guzzling pickups.
And, surprise, surprise, the big buzz surrounding this year’s North American International Auto Show in Detroit is trucks. Oh, Chevrolet introduced a new EV, but the big crowds surrounded Nissan’s new full-sized Titan, Toyota’s latest Tacoma and the triumphant roll-out of the full lineup of Ford’s best-selling F-150.
At least we’ll see the next oil crisis coming.
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