With a rush that may be even faster than the rising price of oil, prices have just collapsed. This is a good thing. In many ways:

Many people dream, invest and work at of developing alternative energy and fuel technologies and the price collapse is a reality check illustrating that as alternatives take market share or displace oil products there will be a price consequence. Alternatives based in ideas of peak oil and other supports to cover a high price are fragile if not illusionary. Oil isn’t going away, and is already a mature industry albeit a market of government producers with little power to influence prices when speculation takes a role. Volatility may be a better selling point for economic change than oil prices. Run the math on the fueling costs with the oil roller coaster ride included, and the volatility price over the duration of high prices, then the economic change picture can be mighty attractive even with periods of low prices.

Many have their allegiance to alternatives based in being ‘green’ with fears about global warming, peak oil and other anti fossil fuel arguments. These positions are learning that ideology means, well, nothing in a world fuel market that is driven by economic needs. Ideology and political influence aside, oil under ½ the price of just 3 months ago points out that selling ideology isn’t going anywhere when the economics won’t make sense in world housing and food.

Helping consumers along, oil and natural gas pricing has taken a hit from the world’s desire to hole up the money in dollars so driving up the dollar’s value and putting even more pressure on world commodities from oil to soybean products. Lots of volatility profit is sitting in cash wondering where to invest. The credit crisis has loaded the financial system with an abundance of fear that has undermined for all practical purposes, the whole business community. Higher dollars could mean lower prices for imported goods if the financial world gets fixed.

Meanwhile, since the hurricane Katrina debacle in the oil-refining sector that lit off the whole price run up, one has to notice the increased awareness of the average person to the role energy and fuels play in their lives.

Now many will worry that Americans will abandon the smaller more efficient new cars. Will the automakers restore SUV production; kill the ‘Volt’ and bail on other energy and fuel reduction projects?

Even the wildly interesting and closely watched Tesla Motor Company is delaying its new electric sedan as financing is not available for now. The financing crisis affects everything from wind turbines to nuclear plants.

There are some political inputs to cheer about, tax credits for alternatives and other assistance, but will the new Congress and President with cheap oil at hand kill them for the revenue they so greedily seek to spend? New economy businesses, jobs and opportunities may well be bursting along with oil prices. The future’s brightest new economic sector is at a crossroads.

Energy is important and after a couple of years of great volatility many should see that, but will they remember? The public opinion is a fickle thing at least as the polls and votes are counted up. But keep in mind these are non-priced activities as most people view them. Only a small percentage of the voters actually calculate the impact that the vote will have on their and the nation’s welfare. If there were a fee to list a view with a polltaker or a direct bill for the results of a vote things would be unimaginably different.

It has been said here that energy independence isn’t a worthy goal, but energy security is.

The point of this post is to encourage you gain a new skill, adding the input cost of the volatility of the oil market into your calculations when considering your forthcoming choices. There are serious consequences to oil nearing $150 a barrel, the ride up and the destruction in demand brings with it terrible economic reactions in job losses, investment curtailment, lost spending potential and big government expenditures that mean more taxes or more debt. We won’t save enough in low oil prices to cover those costs unless the low prices last a very long time.

Low oil prices won’t last any more reliably than the high prices did. But we’re still paying for those high prices – even though the housing boom collapsed and the credit crises it triggered gives cover – and we’ll pay for years to come. Chances are that oil prices will rocket up again before all the bills are paid from this time.

What to do? If you’re adopting the suggestion to include the volatility costs of oil and natural gas pricing one thing becomes clear – get on an oil product diet. Substitute with something that isn’t so volatile. The sooner you can overnight charge a car, use a renewable fuel or other alternative instead of buying gasoline at the current pump price you’re going to be vulnerable for the direct costs. And until most people catch on you’ll still be on the hook as a cosigner for the indirect costs for decades to come.

A look at one’s IRA or 401K statements makes clear, relying on volatile oil prices is a sure way to lose capital. Energy and fuel are foundational, basic costs to business, life and government services. What one must accept is that over time oil based investing is a road of declining fortunes. That which can be renewed, recycled and reused on the other hand is more secure and valuable as the ‘product’ isn’t ever really gone. But the service to make it available again may well last ‘forever.’

Those two points, pricing in oil volatility in direct and indirect costs and the long-term investment sense of capitalizing for a product that is forever gone vs. one that renews are the new basics I hope you will consider.

The perspective is changing; lets try to get the new one right.


2 Comments so far

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