Get ready to pay more for gas. It turns out American Oil is only effective at higher price points. We were starting to see shale oil producers (with a higher cost of production than drilling) shutter under the lower oil cost due to the unbridled production in Saudia Arabia and lowered demand.
Saudi’s had opened up production without restraint after a treaty with Russia ellapsed and Russia (who’s income is dependant on oil prices) decided not to re-up. Our recently lowered gas prices have been partly because Saudi Arabia was putting pressure on Russia to sign a deal.
Overall, this new OPEC+Russia deal is a good thing because it stabilizes the rules of oil production and will stabilize the costs in the long run. However, these costs will now probably be higher than before.
Why do rules matter more that cost? Because we need to be able to predict pricing to accurately budget. It becomes much more difficult for a business to succeed if their costs are not predictable. If I budget too much operating costs (lower fuel prices than expected) then I have over priced my product and am not competative in the market. If I budget too little operating costs (fuel prices are higher than expected) then I will need to take out expensive loans to cover the unexpected costs.
Why is this bad? We’ve seen the American demand for oil scale back sharply due to, what is expected to be, short term self issolation practices. That lowered demand is also putting a strain on gas station owners, most of whom are small businesses. With higher prices likely putting a damper on demand for a longer period, we will likely see a reduced capacity at the last mile of oil distribution: less gas stations (closing due to lack of profitability or solvency by those small businesses). With reduced supply prices will climb even higher after demand eventually picks up.
It’s probably a good time to consider a plug-in hybrid or electric vehicle. $5/gal prices are on their way, and that corner gas station might not be open anymore. I know a lot of you are gonna be angry about the higher costs but things change and you’ve got to roll with the changes.
Why is this good? We’ve built a lot of great things on the backs of dinosaurs, but higher costs in oil will force us to put more time and energy into building an infrastructure that uses oil more effeciently. We can do things like, invest in new energy technologies, enhance our electric distribution network, or improve our efficiency of use. The Less oil we use now, the more we will have for future generations.