Our Perspective on the 8 Strategic Factors Shaping Oil Price in 2012
The price of oil is still one of the most important factors shaping the economy. It can determine not just how much you’ll pay for a gallon of gasoline but also how fast the American and the eurozone economies will recover. It even has a say in who will be the next American president. This is why many people and companies try to predict the price of oil and better understand the events that influence its volatility.
Two people that tried to give it a shot are Gregory Copley and Yossef Bodansky, who are editors at GIS/Defense & Foreign Affairs. They published a list of 8 strategic factors that will likely to influence the price of oil in 2012. This is a very interesting list, although it comes from a business-as-usual perspective, which doesn’t look much beyond the price volatility implications of geo-political events. Adding the green energy market point of view might provide an even more comprehensive picture of the upcoming year, so here’s our take on 2012:
1. Growing global instability might be good news for clean energy – unrest in Nigeria and the Iranian threat to blockade the Strait of Hormuz drove oil prices up this week. We are more likely to see this kind of event in 2012 and if tensions, especially where Iran is involved, transform into crisis, the price of oil can skyrocket. “Energy analysts say even a partial blockage of the Strait of Hormuz could raise the world price of oil within days by $50 a barrel or more,” according to the New York Times. Such a trend can make the business case for clean energy much stronger, making solar and wind energy look much more attractive.
2. But not necessarily… – 2012 will also be the year where we’ll see a divide between renewable and secure energy supply. It’s true that the sun and the wind can’t be subject to a blockade threat from Iranian, but natural gas deposits in the Marcellus Shale or Canadian oil sands, are secure without being eco-friendly. Proponents of these non-clean alternatives will probably use the rise in the risk of oil shipment in 2012 as an argument to convince the public and Washington of the need to extract more oil and natural gas in North America. If you want to understand what it means for clean energy just take 3 minutes and 39 seconds of your time and listen to this story on NPR about solar panels that need to compete with cheap natural gas.
3. The Arab Spring can reshape the old oil regime – the Arab uprisings have ousted or weakened some American allies, making the oil reality of the Middle East even more volatile and unpredictable. It doesn’t necessarily mean the Arab Spring is good news for clean energy (see point 2), but it means that there’s a good chance Middle Eastern oil would stop being a default option for many countries and will make them rethink about their energy supply. Hopefully, climate and environmental considerations will be incorporated in the process, leading to further use of clean energy resources.
4. The year of storage – the authors write that in 2012 we’ll see “a growth in the development to strategic scale (a significant change) of viable storage devices”. It’s also true for renewable energies, such as solar thermal, where we are expected to see companies like SolarReserve and BrightSource moving ahead with new storage technologies that are supposed to make renewable energy more competitive on a larger scale.
5. The unrest in Nigeria will not move big oil companies to clean energy activity – One of the factors the authors write about is the return of the chaos in Nigeria, where there is a threat of a civil war. Only this week Bloomberg reported that Nigerian workers began a national strike after fuel costs more than doubled, threatening to shut ports and disrupt output from Shell and Chevron. Even if the situation in Nigeria escalates, it’s unlikely that Shell and the other big oil companies operating in Nigeria will see it as a reason to shift their focus to renewable. There’s too much money for them in Nigerian oil to give it up, and in the worst case scenario, where they are kicked off the country, they’ll just be looking for a new Nigeria to make money from.
6. 2013 might be even more important – The authors write that “based on present evidence, the US energy dependence pattern will remain slow to change in 2012, and significant change is only likely to occur with a change in US political leadership, which could occur at the beginning of 2013.” They’re probably right – the results of the upcoming elections can make a big difference for the clean energy sector, making 2012 a not so important year after all.
7. Political changes in China – the authors remind us that the Chinese President Hu Jintao is going to step down from the presidency in 2012, and this will trigger a new era in Chinese politics. His successor Xi Jinping seems to be a supporter of clean energy and can play an important role in promoting a conservation culture in China and leading the country to meet its 12th Five-Year Plan clean energy targets.
8. Take predictions cautiously – no matter how smart analysts are, it’s difficult if not impossible to predict the future. Who could foresee, for example, the Fukushima nuclear accident and its implications on the Japanese and Germany nuclear policies? I also bet few if any analysts at all predicted the bankruptcy of Solyndra and the damage it caused to the solar market in 2011. In other words, take all predictions cautiously and don’t forget to check them on January 1st, 2013.