Posts Tagged ‘oil price volatility’

Volatile Oil Prices Cause Uncertainly

July 6, 2009

A NY Times story today talks about the volatility in oil prices, including the impact rollercoastering oil prices have on consumers’ and businesses’ abilities to predict costs.  Whether in their homes, or in their businesses, people like to know what to expect.  Oil moving between $50 and $150 per barrel makes that difficult.  But there is a way to rein that uncertainity in–and get bigger returns for doing it, standing the risk/return tradeoff on its head.  And as goes oil, so goes gas and electricity, even if those changes get smoothed out a bit be utility regulatory processes.

Let’s say you heat with oil (could be gas–or we could be taking about electricity and A/C).   If you spend $1,500 per year at “normal” prices, but that could double to $2,500 per year, you’re looking at a large swing–up to an additional $1,000.  Now let’s say you improve the efficiency of your home by 50%, reducing your “normal” costs to $750.  If prices spike, your bill goes up to $1,250–still less than you’re paying now, and $1,750 less than you’d spend on energy in your current inefficient house!  And if prices don’t spike, you save $750/year.

You cannot control wars in the Middle East, bickering between Russia and Europe over natural gas pipelines, oil price speculation, or hurricanes that disrupt production.   You cannot control the price of oil, gas, or electricity.  But you can have an enormous impact on how these prices affect you.  The choice is to ride the stormy seas and risk getting sunk–or protect yourself from changing prices.  It’s better than insurance though, because you save if energy prices go up, and you save if they don’t!  That’s just plain smart.

So how does reducing your home energy use by 50% sound?

Thanks,
Mike


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