Why do oil prices go down? Because they went up. Why do oil prices go up? Because they went down. That’s what they do. To avoid oil-price volatility, you must kick the oil habit.
You can do this by switching to efficiency and renewables. You’ll get cheaper energy services at steady prices; free price insurance; and lower risks to climate, health, environment, global development and security, and America’s independence and reputation.
In contrast, the oil for which the U.S. pays $1 billion a day — and paid $2 billion a day until mid-2014, when $100+ per-barrel prices halved — comes with price risk and far bigger hidden costs that at least triple the real societal cost to upwards of $4 billion a day.
So why, after four relatively placid years, did the world oil price tumble starting in mid-2014, and what’s next?
Why Oil Prices Fluctuate
People burn 1.3 cubic miles of oil a year, or 93 million barrels a day (each barrel equal to 42 U.S. gallons or 159 liters). Scott Pugh, energy advisor to the Department of Homeland Security, visualizes those barrels, each 20 inches in diameter, laid end-to-end and joined to form a pipeline. It’d stretch 1.8 times around the earth. To traverse that pipeline in 24 hours, the oil must flow at 1,835 miles per hour — 2.44 times the speed of sound.
Crude oil’s price fluctuates at more like the speed of light, varying with global, regional, local, and firm-specific market conditions. Despite many complexities, some broad observations are usually valid.
Oil prices tend to rise with instability in major exporters — Persian Gulf, Nigeria, Venezuela, Russia — though diversified supplies, suppliers, and delivery routes have made markets more placid. Strong economic growth also tends to raise prices — until they get high enough to dampen or reverse the economic growth. Conversely, oil prices fall when major exporters do what John D. Rockefeller used to do regularly: “sweat the market” with oversupply to bankrupt high-cost producers and thus raise one’s own monopoly rents.
Read more: Medium