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01.08.2009
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What Happened to $150-a-Barrel Oil?
What a difference 6 months has made. At Realcomm 2008 in San Diego, I facilitated a discussion with a group of CIO’s from leading commercial real estate firms about the future of oil and the impact on commercial real estate. After a quick poll of attendees, the predictions ranged from $100 to $200 a barrel. These attendees, including myself, thought that 2009 would see oil prices settling between $125 and $150 a barrel based on global economic growth and the relationship between GDP and energy consumption. The math dictated that increased demand would keep pressure on oil prices, and the price would stay high….so what happened?
The unprecedented, historic fluctuation in oil prices has stumped even the most experienced energy analysts and billions of dollars have been lost. To understand the impact of this shift, consider the revenue losses in places such as Abu Dhabi, Saudi Arabia, Venezuela, Iran, and Russia. These oil-dependent economies have been severely impacted in a brief 6-month time period.
When one analyzes the record-shattering price difference between the low and the high prices of oil, the obvious questions are what happened and why. What happened? Hyper-speculation based on increased oil consumption, due to legitimate global growth (the value of the dollar also plays into this equation but will not be considered in this discussion). The economic activity associated with tremendous growth in North and South America, China, Russia, Europe, and the Middle East has been building for years. How could it change so dramatically in 6 months time? Has the world really stopped using oil? Obviously, global demand is a key part of this unique situation. The question is: Just how important is it?
The second significant factor in this surprising decline in the price of oil is speculation or, as I like to say, “hyper-speculation”. It seems that a major part of the $100-a-barrel variance in the price of oil was pure hype. People who convinced each other of certain financial realities based on erroneous or muddled information, at best, drove the price of oil to historic prices. This is quite unsettling from an investment standpoint. Without knowing what percentage of impact in that $100-a-barrel oil price swing was due to speculation, even the most diligent investment analysis will not provide answers…no math can accurately calculate the true value based on supply-and-demand with this amount of uncertainty. Even worse, if this speculative impact existed in the energy sector, does that mean it has infected all equity investments?
So where does the price of oil go from here? That’s a billion-dollar question. If China’s expansion has not really slowed, will their GDP growth require more oil? Are the oil fields of Saudi Arabia really peaking (as suggested in congressional testimony)? Will Iran, Venezuela, and Russia continue to use forceful, uncomprising methods with this asset that they own, which is needed by so many? What would another terrorist attack on a major refinery do to the price of oil? The bottom line is that until we can accurately forecast speculative behavior or get a better idea of how fast the global economy will grow and retract, these questions will go un-answered. However, we do believe that the global economy will stabilize, and the more than 3 billion people in developing countries who want a Westernized life-style, will continue to use oil and other natural resources at an unprecedented rate, which will, ultimately, cause the price of oil to rise again.
The most important lesson we can take from this is: DON’T STOP WHAT WE WERE DOING WHEN OIL WAS $150-a-BARREL! Conservation; sustainability; more efficient buildings, which use 40+% of daily energy resources; more fuel-efficient cars; and all those “green” conversations need to continue. The worst thing we could do now is to go back to a sense of complacency, as it relates to energy and the building environment. We need to take this brief relief from very high prices of oil to SPEED UP our efforts toward energy efficiency and independence on foreign oil suppliers. From a social, political, and financial position, learning how to maximize our limited natural resources is one of the best things we can do for our country and ourselves. My hope is that our industry will take the long view on this topic. It might be one of the best opportunities for independence that we have seen in a long time and, by the way, when oil returns to $150-a-barrel, we’ll be glad we made the right decisions when we had the chance!
This Week's Sponsor:
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Next Week: Innovation Spotlight
SEMINAR AND EVENT SCHEDULE - 2008/2009:
Jan. 22 - WEBINAR: In-Building Wireless
Feb. 19 - CIO Forum - Los Angeles, CA
Feb. 20 - WEBINAR: Energy Efficient Technologies
March 4 - Realcomm Europe Summit - London, England
March 19 - Energy Efficient Buildings Seminar - Hosted by BOMA Atlanta and Georgia IREM - Atlanta, GA
March 20 - WEBINAR: Automated Business Solutions
March 26 - CIO Forum - Washington, DC
April 9 - Automated Business Solutions - Hosted by BPG Properties - Philadelphia, PA
April 9 - Energy Efficient Buildings Seminar - Hosted by BPG Properties - Philadelphia, PA
April 23 - CIO Forum - New York, NY
April 24 - WEBINAR: Business Intelligence & Real Estate
May 14 - CIO Forum - Chicago, IL
June 23-24 - Realcomm 2009 Conference - Chicago, IL
July 16 - WEBINAR: In-Building Wireless
Aug. 27 - CIO Forum - Toronto, ON
Sept. 18 - WEBINAR: Energy Efficient Technologies
Sept. 24 - Energy Efficient Buildings Seminar - New York, NY
Sept. 24 - CIO Forum - Dallas, TX
Oct. 15 - Energy Efficient Buildings Seminar - Hosted by AOBA DC - Washington, DC
Oct. 15 - CIO Forum - Atlanta, GA
Oct. 16 - WEBINAR: Automated Business Solutions
Oct. 29 - CIO Forum - San Francisco, CA
Wireless: Satisfying the Demand For Wireless Indoors - 1/22/2009
As the usage of wireless devices continues to grow exponentially, building owners are faced with the challenges of supporting wireless communications inside their buildings. Whether it’s cell phone coverage for tenants, emergency communications, wireless building systems, or WiFi in the lobby, you need to know how wireless technologies will affect how you manage and operate your buildings. Register now!