It is not just surplus oil driving prices down

As many know, the price of gas continues to fall. Drivers have been smiling at the gas pump paying US$25 rather than US$50 each fill-up. It is obviously related to the price of a barrel of oil which is beneath US$30.

A key cause for the falling price per barrel is the glut or surplus supply in the market. It was already high, but Saudi Arabia decided to keep producing. Now, we are about to see Iran release more oil when the sanctions are lifted. This may drive the price down even further.

But, is it only related to the glut? There have been three trends that have and will continue to impact the demand side. First, as started by President George W. Bush and ratcheted up by President Obama, new cars must have increasingly higher miles per gallon (mpg) requirements. In 2015, there were more cars sold in America than ever before, which means buyers’ replacement vehicles will likely have better mileage. Even a new truck will have better mpg than the one it replaces.

Second, an increasing number of hybrid cars are being sold. It is no longer rare to see hybrids on the road. And, electric cars are starting to sell, but the pace is where hybrids were a few years back. It should be noted one of the new Teslas is the highest rated car ever. Once battery storage permits longer usage than today, the electric cars may take off.

Third, there has been a noticeable trend toward fewer licensed drivers, with younger people foregoing the license.  People are choosing to live in urban areas where a car is not needed. Plus, with more transactions online, they can reduce the number of trips to the store or for entertainment. Car sharing, ride sharing, mass transit, and cheaper taxi services are creating downward pressure on demand for gas and, as a result, oil.

So, we are embarking down a path of a new normal. The counterbalance is the growing number of drivers in emerging markets, but even that growth may pull back some with obvious congestion and air pollution. Plus, lower gas prices means more car travel.

The times are indeed a changing. And, our fossil fuel industries may need to accelerate their thinking in renewable energy sources for future revenue. The new normal may cause the recovered price of oil to fall short of the old price level, once the glut is used up.

Letter from Mitt Romney to Barack Obama

This is not a real letter, but one that could be written.

Dear Mr. President,

I hope this finds you well. I know we have had our differences and I disagree with some of the positions and decisions you have made, but I want to commend you for your role in helping lower the unemployment rate to 5%. As you know, I promised during our campaign to get the unemployment rate down to 6% by the end of 2016, so you have done well on this issue. I also commend you for overseeing 68 consecutive months of job growth in our country, which has helped reduce this rate.

While I could not advocate this during the campaign, I would like to thank you for using many features of Romneycare as part of your formulation of Obamacare. I take pride that Romneycare is working well in Massachusetts helping to lower the overall mortality rate and am proud that you borrowed from my successful template. I recognize it still needs some seasoning, but Obamacare is on the right track for our country. As you know, I shared these thoughts in an interview a few weeks ago.

We still have our work cut out for us, so I hope our next President can build on these successes. By the way, our friend Newt Gingrich wanted me to pass along his thanks for getting the gas prices down so low, which was a campaign promise he made in 2012.

Best wishes for continued success,

Former Governor Mitt Romney