Fungibility of Oil

A while back I found an article about how hybrid car buying consumers were delluding themselves about what impact their purchase was making on the world. The argument went something like "when you buy a hybrid the associated drop in oil demand has no real effect on the world's oil buying habits because the cheapest gas always sells first so the oil you don't buy will just get bought by someone somewhere else". So, the argument goes, just because you personally have bought one less gallon of gas from, say Saudi Arabia (insert your evil oil selling empire here), just means there will one more gallon of oil for them to sell (cheaply) to, say, China. In effect you have increased the availability of cheap gas to the rest of the world.

To further compound the problem, because countries like Saudia Arabi produce the cheapest gas - as I've pointed out before, so cheap that it's still pint for pint cheaper than buying clean water - you've effectively prolonged the amount of time those countries will be in business making money from selling oil cheaper than the good guys like Canada and Venezuela.

That was, how shall I say it, a bit of a blow to my Hybrid lusting ego. It turns out it was basically a restatement of the fact that oil is a fungible commoditiy - one barrel of oil is pretty much (except for issues of "sweetness" and "lightness") the same as any other and can be traded on the open market as such. Of course it overlooks the fact that regardless of reduce oil consumption's impact on short term oil sales by the likes of Saudi Arabi, it does mean that, in the long run oil supplies will last longer, that there will be fewer carbon emissions and that the US, as a whole, can, in theory, reduce its consumption of oil. I say "in theory" because following the above argument, one could argue that it will just help keep gas prices low and as we should all know, low prices fuel increased demand demand and consumption.

Interestingly the article I read suggested that what environmentalists should be doing is promoting, buying and driving the most gas guzzling behemoths they can afford. In so doing they would help decrease the supply of cheap gas, drive up prices and hasten the switch to more fuel efficient cars and energy generation globally. If you want to wean the world off cheap gas just put your money where your mouth is burn it up, burn it all up!

I never got around to writing about that article until today - in fact I even lost the original reference so I can supply a link to it. The reason I decided to write about it today was that not only did The Economist have an article on the issue of fungibility of oil, but also today's Dilbert cartoon was also about it, specifically the futility of buying a hybrid.

Personally I don't care, I'll still lust after a hybrid or the cleanest, leanest fuel burning car I can buy next time I'm putting dollars down for a car. My purchase will just be a personal investment in encouraging car manufacturers to build more fuel efficient technology - technology that can be used the world over. If Americans can help Toyota get the bugs out of systems to use 50% less gas then that same technology can be sold to countries like China where their reduced consumption will have an even greated effect.

So my next car could be a hybrid, it could be an electric car, or it could be just a clean diesel using all that cleaner low-sulphur fuel that will be coming out in 2007. Yes did you know that in 2007 the US will switch the European standard for diesel fuel which has much less sulphur in it and hence can run with much lower emissions. Lower emissions means less emission control equipment which means higher efficiency. It also means that suddenly there will be a flood of small efficient European diesel cars available for sale in the USA. The only fly in that ointment is that the dollar is globally weak especially in Europe so importing anything from the Euro-zone wont be a cheap proposition and I don't see anything changing by 2007.