I have been watching stock markets and commodity prices for many years. I like to watch because like many Americans my retirement depends on steady growth, so I pay attention to the Dow Jones Industrials and the S&P 500.
The end of this week was disappointing. The Dow and S&P dropped significantly, which experts say was triggered by a free-fall of oil prices.
Not alone, I’ve been complaining that oil prices are extremely vulnerable because of their link to unrest in the Middle East. The instability and high-stakes drama once pushed oil to more than $145 a barrel in 2008 during the worldwide recession. Ironically, that spurred interest in the United States to drill and frack for oil and convert more corn to ethanol. Profits were guaranteed with oil at $145 a barrel and gasoline prices touching $4 per gallon. But oil prices plummeted in 2009 to a bottom of $32 per barrel, although it’s hard to remember because the consumers’ benefits were short lived.
Nevertheless, when writing my first novel, Global Anger, between 2010 and 2012, oil prices were on a new path upward, although well short of the 2008 peak.
In 2011, following turmoil in Libya, oil prices climbed steadily past $118 per barrel, dipping and dodging $100 through most of 2012. About that time, I was concluding Global Anger and looking for a bridge to the sequels. I had Heinrich Althaus, my German expat and member of Global Anchor, the antagonists in the series, visit a Libyan oil baron after Qadaffi’s death. Althaus urges the oil baron to drop oil prices quickly in a ploy to recapture market share. The baron, Kasim al-Katulba, asserts that it’s a risky strategy.
“You are indeed a crazy man, Heinrich. Do you know what that will do to world markets, not only for oil, but for dozens of other commodities and precious metals?”
“Of course I do.” Althaus responded. “Why do you think I’m asking you to do it?”
After plotting my fiction conspiracy, Libya did indeed lower prices. So did all other Middle-East oil markets.
This week, oil went below $36 a barrel. A CBS news story said taking into consideration inflation since the mid 1960s, gasoline, now at $2.00 per gallon, costs relatively less than it did in 1965 when a gallon could be purchased for 31-cents.
Whether manipulated by conspirators – an overly dramatic theory, I know – or simply a cyclical economic reality, the fact is oil is cheap. When it’s this cheap, all of the recent investments made in America to pull oil from our ground or create ethanol from an abundant and replaceable corn supply, make one pause. The business of making the United States energy independent has hit a snag because oil from abroad is cheap, cheaper than we can harvest it.
Are all the loans made to entrepreneurs building fracking operations and drilling new oil wells and building ethanol plants – are they at risk? Will the American energy moguls who were excited by $100 a barrel oil prices in 2012 be camping out on the Capitol’s steps hoping for a bailout? I can hear them claim that they were working with national security in mind. Why wouldn’t Congress be generous? Why wouldn’t they rescue them from overdue loans?
Maybe it was a conspiracy. Maybe oil barons, such as my fiction character Kasim al-Katulba, out maneuvered eager and ambitious American investors. Maybe it was the CEOs of the world’s oil companies that duped the investors.
Regardless, keep an eye on those loans in America, those billion dollar investments in American oil wells and fracking operations and ethanol plants. If they waver or fail, how will the oil barons in Saudi Arabia, Iraq, Libya, and even Russia – how will they react? Will we see $145 a barrel oil and $4 to $5 per gallon gasoline by Christmas 2017? Will Congress be pressured into bailing out a new generation of American businesses to protect the nation’s security and maybe nationalize oil production in the wake?
I think there’s interesting times ahead.