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Why oil prices continue to fluctuate

Pumping gas in San Francisco, Calif.

TEXT OF INTERVIEW

Stacey Vanek-Smith: We've also seen some Olympic oil prices this summer. Last month, crude hit $147 a barrel. Then it plunged, and now it's back up a bit this morning to about $114 a barrel. That's on worries about a tropical storm in the Gulf of Mexico.

The price of crude has become very sensitive to potential supply disruptions like these, and that's raised the issue of stepping up domestic drilling. Mark Bernstein is the managing director of the energy institute at the University of Southern California. Mark, if we really ramped up oil production in this country, what affect would it have?

Mark Bernstein: Well, we'd hit our peak oil production 30 years ago, and we're not likely to find a whole lot more anywhere.

Vanek-Smith: So it's not a question of us not tapping our resources, it's a question of us having tapped them?

Bernstein: We've tapped them. There are still some resources left, and there's some off the coast -- we don't know how much. There's some in Alaska. But we've tapped most of them. And so we can either think about tapping the rest now or holding it back as an insurance policy for later.

Vanek-Smith: We've heard a lot about offshore drilling, about ANWAR, obviously, building up refineries and stepping up oil production. Would that cushion us from fluctuations in the oil market?

Bernstein: In the long run it would, but not for 15 or 20 years. It takes a long time to find the oil, it takes a long time to drill the oil and to pull it out. There's a shortage of oil rigs right now, so even if we opened up a whole bunch of these leases, the oil companies wouldn't be able to do anything anyway because there are no rigs to drill with. So it's not a short-term solution.

Vanek-Smith: Are oil prices, do you think they're going to settle here, or is it possible that they could jump up again the way that they did?

Bernstein: I think they're going to fluctuate.

Vanek-Smith: Why so much fluctuation?

Bernstein: We don't have much we can do about it. If we could tomorrow stop using 10 percent of the oil, prices would come down a lot and stay. But there's nothing we can do in the short term to really affect the price that the markets will see that as a good long-term solution.

Vanek-Smith: So what affect does all of this fluctuation have on the economy and on consumers?

Bernstein: You've got to imagine that this is going to at some point have some slowing effect on the economy. That slowing effect will reduce oil consumption and will bring prices down some. That's the problem we've had in the past -- prices have gone up, prices have come down. So people say, OK . . .

Vanek-Smith: Well, there was the 70's gas lines . . .

Bernstein: The 70's, the 80's, the 90's, it's happened every decade. And I think what's happened this time is people are saying to themselves well, prices will come back down again so I don't have to change behavior, because I changed behavior last time and the prices came down, and so I should have just stayed what I was doing. I think at some point, people are gonna realize that prices aren't going to come down as far as fast, and they will begin to change behavior.

Vanek-Smith: Well Mark, thank you so much for coming in, I really appreciate it.

Bernstein: You're welcome, thank you for having me.

Vanek-Smith: Mark Bernstein is the director of USC's energy institute.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.
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It's the same old line what Mr. Bernstein says "In the long run it would, but not for 15 or 20 years..." If we would have done something back in the '70s we would have the domestic oil necessary today. If we keep saying that, we will never become free from foreign oil dependency. We need to do everything. New energy alternatives and domestic drilling. We also have better technology today that the environmentalists can't just say that it is dangerous to the environment. What is dangerous is getting our oil from "dangerous people" like the Saudis and other Middle Eastern countries who have killed us and keep telling us that they want to kill us. I'ts not that complicated. It is called "common sense". Let's use some for a change.

The largest single source of oil in the US today goes largely untapped: re-refined oil. Nearly all used motor oil can be re-refined to meet or exceed original specifications at a fraction of the cost of new oil. See information on the state of California's web page at:
http://www.ciwmb.ca.gov/UsedOil/Rerefined/

Mr. Bernstein is not correct in saying that it would take 10 to 15 years to extract new oil. Off the coast of Calf. there are shut down wells that could be up and running within a year. ANWAR in Alaska could be on line in about 5 years. Known reserves in the
Gulf of Mexico can be tapped within 5 years. We need to start using the resources we have in the USA and stop this NIMBY nonsense!

According to energy investment banker Matthew Simmons, global oil production is now declining, from 74 million barrels per day to 60 million barrels per day by 2015. During the same time demand will increase 14%.

This is equivalent to a 33% drop in 7 years. No one can reverse this trend, nor can we conserve our way out of this catastrophe. Because the demand for oil is so high, it will always be higher than production; thus the depletion rate will continue until all recoverable oil is extracted.

Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment.

We are facing the collapse of the highways that depend on diesel trucks for maintenance of bridges, cleaning culverts to avoid road washouts, snow plowing, roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, transformers, steel for pylons, and high tension cables, all from far away. With the highways out, there will be no food coming in from "outside," and without the power grid virtually nothing works, including home heating, pumping of gasoline and diesel, airports, communications, and automated systems.

This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed: http://www.peakoilassociates.com/POAnalysis.html

I used to live in NH, but moved to a sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207.

In all the talk about oil prices and the need to do something about them, I continue to be astounded by the paucity of discussion of the value of conservation on the part of policy makers and economists. As Mark Bernstein pointed out, if we cut our use by ten percent now, prices would drop almost immediately and would most likely stay down. The cheapest oil we have is the oil that stays in the well; the attitude now is, if there's oil somewhere out there, it's our duty to burn it. And I continue to be amused by ads by GM touting their supposedly energy-efficient vehicles. So easily we forget the role GM played in destroying our urban mass transit systems so they could sell us more cars. Well, folks, you got what GM wanted.

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