Lessons to Learn from Oil

In July, I paid $4.16/gallon to fill my car and yesterday, I "only" paid $3.68/gallon. Now that crude prices are at a 5-month low and are closer to $100/barrel than the feared $150/barrel, it seems like the urgency to conserve fuel and to find alternative sources of energy have tapered off. I've noticed more cars on the road, and as MoneyNing points out, discussion of oil prices have precipitously dropped off from our daily lives. (Thank you MoneyBeagle for referring this article!)

A friend of mine commented that since gas prices have come back down, she can now get her Starbucks coffee again. This was one of those head-slapping comments that made me wonder whether we have extremely short memories.

Do people really believe that this recent price drop will be permanent? If people are expecting the return of the good ol' days of $1.50/gallon gas, they're delusional.

Today, OPEC oil ministers decided to trim output by more than 500,000 barrels a day and crude prices are rising in Asia. SHOCKING!

But some people argue that OPEC's recent cuts will have little to no impact on near-term oil prices. Who cares about near-term prices? I would've thought that the recent skyrocketing oil costs would have scared most of us straight to think in the macro-sense and in the long-term. The lesson we should have learned was that we need to wean ourselves collectively as a nation from our dependence on foreign crude.

The U.S. only accounts for 5% of the world's population yet consumes 25% of the oil. The world population is increasing and as Third-World nations become more industrialized, we will be competing more for these finite resource. Simple economics dictate that the only way we can accomplish this is by reducing demand and increasing supply.

Drilling off the U.S. Coast and in the Alaskan Arctic National Wildlife Refuge won't sufficiently eliminate our foreign dependence on oil and this effort is going to take at least a decade before we see any increases in our supply. However, by drilling in these areas, the U.S. can take inventory of its own reserves and supply, which would be necessary to determine our future needs. With respect to reducing demand, we need to reduce consumption and find alternative sources of energy.

The process of reducing consumption and increasing reserves will be slow, tedious and will require a long-term commitment. Come to think of it, this lesson also applies equally to our personal finances: We need to eliminate debt by reducing consumption and exploring additional sources of income. By eliminating our debts, we become self-sufficent and reduce our reliance on others.