Crude realities: As oil slides, back to business as usual?

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From Times staff writer Edward Silver:

If a barrel of light, sweet crude ends a day’s trading at $116 or below, the midyear moonshot will have given way to a bear market, one Americans have never been so happy to see. The 20% downdraft is a scant $3.17 from the commodity’s closing price Tuesday.

Oil’s certainly not cheap, but the $145.29 record of early July begins to resemble an anomaly as it recedes in the rear-view mirror. After all, it has been a quick, jarring ride. Just a year ago, oil futures were changing hands at $72.

Numerous trends have teamed up to soften the market. Consumers are drained amid credit and housing woes, and crushing gasoline prices have compelled us to conserve. A slowly strengthening dollar is dulling commodities’ allure for traders. Energy angst has hijacked the presidential campaign, prompting schemes that promise only marginal effect on supply. Neither Tropical Storm Edouard nor Iran’s agitator-in-chief have been kicking up a fuss, calming portfolio managers attuned to weather and geopolitics.

The bigger oil’s spill, the better the news for the global village, at least in the short run. For one thing, falling transport and fertilizer costs will help people get fed. In the world of Wall Street, it gives breathing room to energy-sensitive sectors and the market as a whole. Look at FedEx shares -- they’re up 15% since mid-July. The Amex airline index has taken off in the same period, with AMR, parent of American Airlines, more than doubling. . . .

Yet as the value of oil and gas dwindles, so does the earnings power of oil and gas extractors like Exxon Mobil, Petrobras, Chesapeake Energy and others whose shares have been roughed up lately. Ditto for drilling contractor Transocean, which had jacked up its fees for aiding the oil quest in deep water.

Naturally, firms that toil in Canada’s tar sands are mortgaged to high prices because their yield of crude is especially grueling and costly to come by. Consider Suncor, a winner until its peak in late May. Since then, the stock has surrendered more than 40% of its worth. Even solar shares are risky when oil is weak. Solar generates electricity, but investors typically take their cues from the trend in oil.

How low can crude go and for how long? Well, the planet remains in a state of energy stress. Think about it: Last year, to take one example, car sales jumped 60% in Russia over 2006, yet global oil output was literally flat at about 85.5 million barrels a day.

This short-term price break, however, can stay in place for quite a while. Western economies are sluggish and gas hogs are out of fashion. On the supply side, Asia is hurriedly expanding its refinery fleet. According to the International Energy Agency, global oil output will rise modestly through the rest of the year.

Then there’s the nightmare scenario for oil bulls: tensions between Iran and the U.S. ease. Could happen.

Should the trend persist long enough to lose its “short-term” handle -- if oil sinks further and stays put -- the world changes, if only around the edges.

We’ll drive more, fly more and waste more. The arduous digs in tar, shale and 10,000 feet of water could see more than normal delays and fold-ups. And the alliance of environmentalists and consumers, brought together by pain at the pump, is already coming apart.

Clamoring voters can’t be ignored, and more care about their thin wallets now rather than fuzzy ideas that could provide solutions later. If oil slides to almost-reasonable levels, business as usual could make a haunting comeback. Maybe perfecting plug-in cars and alternative fuels isn’t worth all the trouble.

Use more, extract less and put renewables on the shelf -- three good ways to ensure that the well runs dry faster. But that’s for someone else to worry about, in the long term.