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Summary:

Oil prices have headed back up to close to $100 a barrel. Will the demand for cleantech products — like electric, hybrid and biofuel cars — get a boost? And will high oil prices stimulate cleantech investing?

oilbarrel

There’s a lot of debate over to what extent the demand for cleantech products and oil prices are linked, but in general sky high oil prices seem to help boost demand for goods like electric cars, and biofuels, as well as stimulate cleantech investing. At least that’s how it looked back in 2008, when oil traded around $100 a barrel for awhile, and hit a high of $145.

Well, now that we’ve entered into 2011, oil prices have shot back up, and are hovering once again around $100 a barrel, at their highest level in two years. The oft-cited oil benchmarks the West Texas Intermediate and Brent have yet to hit $100, but some of the more under the radar crudes are already trading above $100, points out the Financial Times. Other indicators are that hedge funds have raised bets on rising oil prices.

While oil prices are infamously volatile — by the end of 2008 oil prices had dropped back down to $37 a barrel — it will be important to see if average oil prices remain above, or around $100, in 2011. In 2008, average annual oil prices were at $99.7 a barrel. Oil prices could easily drop back down in the next few weeks or months.

The oil price prediction game looks a lot like drunken darts: it’s often all over the board, with numerous reasons and explanations (Ford Chairman Bill Ford made that analogy at a conference in 2009). In terms of the economy, high oil prices make consumers nervous, and spend less. Nobua Tanaka, president of the International Energy Agency, has already called the current high oil prices of 2011 “alarming.”

But high oil prices will actually be rather good for the green car sector. All-EV companies like Tesla, and Coda will feel a boost from high oil prices, and big automakers that have been aggressive on EVs and hybrids, like Nissan, GM, and Toyota, could reap rewards as well.

Even automakers that have a solidly mixed car portfolio, like Ford, will benefit from less volatility in oil prices. As Ford Chairman Bill Ford put it in a speech in 2009, he actually endorses a gas tax, to keep prices at a certain level. “If prices are gyrating wildly,” it becomes extremely difficult to know whether the company is planning the right vehicle or technology.

Oil prices seem to be headed upward over the long term. As Department of Energy Chief Steven Chu has put it: “I don’t know what it [oil prices] will do next year or in the next two years,” Chu said, but “the price of oil will go up in 10 or 20 years.” Chu says high oil prices and living in a “carbon constrained world,” means we should take a cue from Wayne Gretzky in terms of low carbon infrastructure: “skate to where the puck is going to be, not where it’s been.”

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  1. Interesting article. One of the things I have been concerned with is the strain that oil will put on the economic ”recovery.” Even though these one off situations like Egypt, Saudi Arabia, and Japan will have a short-term effect, the long-term trend is what I am most concerned about. What is interesting is that in several areas that have been hit hardest the following circumstances are all happening at once.
    In most of these areas (Phoenix, Las Vegas, Inland Empire) , housing prices have crashed, leading to underwater houses and eventually foreclosures. Unemployment has skyrocketed in these areas as well. Now that prices have fallen so far and inventory appears to some to be ripe for the picking, investors are purchasing properties for to rent for cash flow. However, as oil picks up, it is becoming clear that many of these desert communities are not sustainable as they rely on cheap oil as many of the cheapest surrounding areas are commuter communities. The uncertainty is tremendous in these markets, yet many investors are jumping in and gobbling up properties.

    http://www.thecashflowisking.com

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