For every subtle and complicated question,
there is a perfectly simple and straightforward answer,
which is wrong
Cindy and I did our best. We tried to do our part to consume our fair share of gasoline to keep the only growing sector of the U.S. economy afloat. But in the end, it was too much of a hassle to keep two cars, ages 11 and 17, on the road. In the last six months we traded two vehicles getting 19 mpg for a pair that average 32 mpg. So we will use 534 fewer gallons of gas this year than last. We feel bad about this.
Since the average age of cars on the road today is ten years, it’s just a matter of time before the American auto fleet turns over, unpatriotically reducing its consumption of gas by 40%. This is calamitous! Fracking for oil has been the only bright spot in the U.S. employment picture:
But if you listen carefully, you can hear the death knell in that business. Fracking is an expensive way to extract oil. The frackers got really busy when speculators in the futures market drove the price to $140 in 2008. Since then, the commodity bubble burst and oil is down to $50 (probably headed further south), and the frickin’ frackers are in a world of hurt because they need $100 oil to be profitable.
At the present price of West Texas Intermediate, producers can’t afford to drill because bankers, observing the sudden rise of bankruptcies in the industry, have quit making loans in the oil patch (they’re no fools). So rig counts are collapsing and employment is cratering (something the government conveniently failed to include in this month’s employment report, by the way), and producers are having to pump the hell out of existing wells, selling product at a loss just to pay off their existing loans.
Rig counts are collapsing, but oil inventories are climbing:
Because consumption is falling off a cliff:
So, when that blond lady in the black pantsuit strides across your flatscreen, confidently informing you that a new age of energy independence for the U.S. is at hand, she may be right. But not because the fracking industry will secure it. The source looks to be a massive disruption in all forms of energy use. And, as Cindy and I have just discovered, the automobile industry is a major disrupter.
Today, the economy is, in most sectors, just barely keeping its head out of water. Autos are the exception, having nearly recovered their losses from the Great Recession:
For good reason. The engineering advances of autos being produced today are amazing. Fuel efficiency has dramatically improved in the last decade, and maintenance costs are down. Oil changes are now recommended at 10,000 miles, instead of the older, 3,000 mile schedule, dropping lubricant use in new vehicles by over two thirds.
As an added benefit, our insurance premiums went down as soon as we traded, something we did not expect. New cars have more safety engineering than ever, and insurers recognize it with lower premiums on new cars.
What to make of the situation?
The drop in oil prices is likely to persist, which means a big rise in unemployment in the oil patch. But the elimination of a big chunk of the use of hydrocarbons is great for the environment.
So far, there is no evidence that consumers are spending more on general consumption as a result of lower gas prices, so no net improvement in the economy–except for auto sales.
The increase in fuel efficiency and safety in new cars is a powerful good, unless you’re a mechanic. Your shop will get one visit a year from your customers instead of three.
So, with apologies to your friend in the service department, go get a new car. Nothing like the new car smell to improve your sense of well being on the way to work in the morning.