The new old normal

There is nothing quite like cheap oil to lift the sagging spirits of depletionists, who had been going through a bit of a rough patch.

Little known and much maligned, adherents of depletionomics believe the best way to reduce pollution, reign in rampant resource exploitation and throttle climate change is to deplete the world’s oil supply as quickly as possible. Use it all up, down to the last drop. Gradually reducing dependence on carbon fuels, they believe, would only delay indefinitely the development of renewable resources and preserve the disparity between the energy haves and have-nots.

Ultimately, they contend, the planet would be more likely to survive the shock of a quick end to oil than continuing damage from artificially prolonged use.

Unfortunately, those who favor speedy depletion of the world’s known oil reserves had little to cheer about of late. For a while there, public and private investment in solar, hydro and wind power seemed to be picking up, and automakers were starting to turn out more and more hybrid, electric and even hydrogen fuel cell cars that use obscenely small amounts of petrol or none at all. Sadly, even ordinary people were starting to buy into the idea that reducing consumption and conserving oil was the best way to go.

But things are changing, thanks to the hydraulic fracturing - fracking, as it is affectionately known - boom in North America and the self-serving actions of Saudi Arabia. Niggling qualms of U.S. environmentalists aside, frackers have made a good start on depleting a heretofore unexploited source of petroleum and in so doing flooded the North American market. That forced the barrel price down to levels not seen since the aftermath of the 1973 OPEC oil embargo. In January, the price of a barrel of West Texas Intermediate Crude on the global market was $47.79; in January 1976, it was $47.13.

Despite tanking prices, and against all odds, Saudi Arabia snubbed its OPEC brethren and decided to keep the cheap oil flowing. Popular theory was that the shortsighted powers that be in the Kingdom wanted to keep the barrel price low enough to undercut the upstart frackers and preserve market share. Other oil-exporting countries had little choice but to do likewise. Some say the Saudi stance could be the undoing of the pesky oil cartel, whose production quotas have long been a bane of depletionists.

Could it get any better? You bet. As any depletionist knows, nothing uses up oil quicker and more efficiently than cheap gasoline.

Last week, many Koreans spent much of their Lunar New Year holiday on the country’s highways, and it cost them less to do so than it has in years. From an average price of $6.01 per gallon for premium at the beginning of November, the pump price slipped to $4.88 nationwide on Feb. 9, according to GlobalPetrolPrices.com. That’s a drop of 19 percent over the traditionally busy Christmas, New Year and Lunar New Year holidays, when one might logically expect to pay more due to greater demand.

In the United States over the same period, the price of a gallon of premium went from $3.25 to $2.27, a drop of 30 percent.

And what better way to celebrate the return of cheap fuel than by buying a new gas-guzzling truck or SUV? January sales of light trucks in the United States were up 21.9 percent year-on-year, and SUV sales were through the sunroof. Large SUVs increased an incredible 74.3 percent and luxury SUVs 33.4 percent. Especially encouraging for depletionists were sales of midsize SUVs (up just 3.2 percent) and comparatively economical small SUVs (up 6 percent).

Even industry has joined the cheap oil party. As 2014 performance reports roll in, it is clear the bottom lines of more than a few companies have been saved by cheap oil. Asiana Airlines, for example, had a net loss of $104 million in 2013, but last year saw a net profit of more than $57 million on just a 2 percent rise in revenue by hitting the jet fuel jackpot. One analyst estimates Asiana will save $558.5 million on fuel costs this year alone.

From the depletionist perspective, that is perhaps the most encouraging development of all: An apparent consensus among everyone from Ford Explorer buyers to industrial economists that, despite the lessons of history, cheap oil will continue for the foreseeable future.

So relax, and fill it up.

*The author is the business news editor of the Korea JoongAng Daily.

by Bertil Peterson