Even with a growing number of companies and individuals working towards reducing the world’s dependence on oil, the majority of the populace are unaware of these efforts, the impact and the benefits we will all gain, now and in the future. Personal transportation is the area that receives the focus of both environmentalist and those seeking alternative energy sources. This is the sector that consumes the majority of oil and produces the majority of greenhouse gasses. Hybrid automobiles have made an impact on our current oil consumption and all-electric cars carry the promise of dramatically reducing our oil usage starting as soon as 3-5 years from now and continuing into the foreseeable future. These advancements are already generating real savings to not only the owner of the electric car, but to all automobile users. The source of theses savings can be found in the way crude oil is priced.
Light sweet crude oil reached an all-time peak price of $147.27 on July 11th, 2008. Since then, prices have declined to the current level of around $35-$40 a barrel. The cause of this dramatic drop is due, almost entirely, to a reduction in demand and a worsening economic outlook. But there are other factors that determine the price of oil, such as political tensions, supply controls and long term demand forecasts. Whereas the Hybrid cars have already made an impact on current demand, the all-electric car is placing it’s own downward pressure on oil prices by altering the forecasts for future demand. A simple scenario can clarify the latter of these two statements.
Suppose you just found an oil reserve under your house of 1 million barrels. Once the euphoria wore off, you would be most concerned with getting the most value out of your finite amount of oil by selling the most product possible at the highest price attainable. Once you have accounted for competitors supply and current demand, you must consider the longer term outlook for oil consumption. If you, and your newly hired, high-priced advisors, determine that consumption will continue to out-pace supply, you may decide to limit your production in anticipation of higher prices in the future. This would further apply upward price pressure as other producers would come to the same conclusion and supply would drop. Conversely, if your conclusion is that prices will decline, you would want to maximize your profit by selling as much as possible now before prices drop. Again, the effect would be amplified as other supplies hit the market competing for a fixed demand.
Part of the process of evaluating future demand must focus on the state of alternative energy sources as these technologies are intended to reduce oil demand. Within the last year the following areas have made significant commitments to all-electric vehicles; Israel, Denmark, Australia, Hawaii, San Francisco, San Jose, and Ontario. These agreements lay the ground work for the roll-out of millions of vehicles that would not require any gasoline at all. As the all-electric car gains momentum, so does the downward pressure on crude oil prices.
Although it would be impossible to speculate as to the amount per gallon we are saving from these efforts, the savings are most assuredly there and will only continue to rise as these new technologies capture larger portions of the market. Even as oil prices continue to fluctuate up and down, we can all thank these pioneers for an ever-increasing amount of savings we all enjoy, regardless of how much these savings might be.