Yergin Says Record Oil Prices Call for Multifaceted Response
There's no single solution to high oil prices, and lawmakers need to take an “ecumenical'' approach to drafting legislation and policy, according to Daniel Yergin, chairman of Cambridge Energy Research Associates.
“We ought to really get beyond `either-or' and the notion that there's only one thing to do,'' said Yergin, the Pulitzer Prize-winning author of “The Prize,'' a history of the oil industry. “It doesn't work that way in a $14 trillion economy.''
Changes to oil policy, renewable fuels, alternative energy sources and improving fuel efficiencies can all be part of a solution, Yergin said in an interview with Bloomberg Radio.
Oil futures rose 48 percent in the first half of the year amid declines in the dollar and concern that supplies won't be able to keep pace with demand, particularly from developing countries. Unrest in Iraq and Nigeria and speculation that Israel may bomb Iran have also supported prices.
Crude oil for August delivery rose 97 cents, or 0.7 percent, to $140.97 a barrel yesterday on the New York Mercantile Exchange. Futures have almost doubled from a year ago. Oil touched a record $143.67 on June 30. The price climbed 38 percent between April and June, the biggest quarterly increase in nine years.
The oil market “really reflects the success of globalization and hundreds of millions of people rising out of poverty,'' Yergin said. “Demand isn't stagnant.''
U.S. gasoline use may have peaked in 2007, Yergin told a congressional panel June 25. Consumption for the week to June 20 slipped 5 percent from its peak of 21.3 million barrels a day on Jan. 4, data from the Energy Department shows.
Supply Concerns
The International Energy Agency said yesterday that global supplies may not keep up with demand through 2013 and that spare capacity from the Organization of Petroleum Exporting Countries will shrink by 2013, keeping the market “tight.''
“I think there is a kind of shortage mentality that is particularly strong in the financial markets that believes in three to five years from now we're in an oil crunch because of a lack of timely investment,'' he said. “We still have this very sort of old-fashioned view that price matters and supply and demand do work, even with delays.''
Yergin cautioned Senators Barack Obama and John McCain, the Democratic and Republican contenders for U.S. president, to “have a basic confidence in the ability of markets and don't overdo it in terms of interference and regulation'' when they plan energy policy. “Be careful what you do.''
Congressional Action
The U.S. House of Representatives last week approved a bill calling on the Commodity Futures Trading Commission to use its emergency powers to “curb immediately the role of excessive speculation'' in any market it oversees where energy futures or swaps are traded. The measure, which passed 402-19, must be approved by the Senate and be signed by the president to become law.
As biofuels such as ethanol become more important in the global transportation mix in the next three to four decades, oil isn't likely to become irrelevant or disappear, Yergin said. Still, “oil is not going to have the almost totally dominating position in transportation that it had kind of until now.''