The oil industry has done a great job of self-promoting their increased production capacity as the reason for the collapse in oil and gasoline prices. Let’s get the facts right: The world has been, and continues to be, awash with oil supply. The world has been producing 90+ million barrels of oil per day for several years.
The reason oil cost $100 per barrel and gas prices sat above $4 per gallon was because of soaring global oil demand that was sucking up the world's oil production. What has changed in terms of collapsing gasoline prices is that the global demand for oil is falling. The three factors driving oil prices down are:
The second reason the millennial generation is not buying gas-guzzling vehicles to use in a rush-hour commute is that this is just not “cool.” This is the generation that defines itself by being cool with a purpose. They seek a lifestyle that is affordable, socially engaged and environmentally responsible.
For the millennial generation, the burning of gasoline -- with its link to climate change -- is not cool. Using digital technology to work from home is cool. So is choosing to live closer to work to reduce commuting costs and emissions. What is cool with a purpose is walking, biking or using public transit. The net result is that the millennial generation is dramatically reducing their purchase of gasoline and gasoline vehicles compared to their parent’s boomer generation.
However, another reason for the country’s slower economic growth is that China now confronts an environmental crisis: Sixty percent of its water supply is contaminated and is unfit for human consumption. Air pollution is a major health crisis where less than 1 percent of China’s 500 largest cities meet the World Health Organization’s air quality standards. The human health cost-consequences of China’s massive fossil fuel consumption are soaring health care costs and reduced worker productivity. In response, China is enacting new public policy to reduce its consumption of fossil fuels, including oil. China’s new approach is a significant price-eroding pressure on the global oil supply.
California’s consumers are testing another path. California homeowners are buying rooftop solar at record levels to slash their power bills by 40 percent or more. What many of these homeowners are learning is that they can also eliminate their gasoline costs by using rooftop solar power. Many of California’s rooftop solar owners are leasing electric cars fueled from their roofs. They are finding that what they save in gasoline costs from using solar power more than pays for the lease payments on their electric cars. The emerging economics of homeowner solar in California looks like this:
Image credit: Flickr/philipsphotos
Bill Roth is an economist and the Founder of Earth 2017. He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues. Follow him on Twitter: @earth2017