Dollar drops and oil pops. Once again a break in oil prices gets reversed on a weakening dollar. Going into the trading day some went into it with a risk adverse posture. The dollar had firmed up in recent days as fears that the day's economic reports might thwart a seven day stock-market rally and fears that the Federal Deposit Insurance Corporation and our nation's largest banks might be in worse shape than we thought.
Banking health is, believe it or not, a key factor in the price of oil. I have written that from the beginning of this credit crisis that oil has become a hedge against risk; a theme that many doubted at the time but now is widely accepted. Oil became a safe haven as traders lost confidence in the US banking system ran to oil to protect themselves from the deteriorating economic world around us. Now some critics now call that excessive speculation but what I call it is reflection of the reality. You have to remember the value of any commodity when expressed in a currency will ultimately be determined by the confidence and faith in that underlying instrument.
Before we had currencies commodities were currency. Instead of paper money we bartered. Over time paper money became accepted form of currency and the value of commodities were expressed in that paper currency. As the market place loses more confidence in paper it will take more paper to find what may be a fair exchange. I guess what I am saying is, the more that confidence is lost in the dollar, the more a commodity becomes a currency. It is not acting any differently than commodities have for generations but the way we value the commodity has.
Of course there are many bright minds working to make sure our energy future still is looking bright. Yesterday I had a visit from Ilana Greene who is finance major at Harvard University and actually interned with me a few summers ago. In fact she found the energy space so interesting that she joined the Harvard Energy Club where students from Harvard and MIT plan solutions to our nation's energy problems. One of the issues they have focused on is energy conservation and human behavior. In other words, other than financial incentives how do you inspire people to commit to saving energy. We know that most people do not even think about conserving energy when prices are low. The students believe that if they appeal to our better nature and create a joint effort that will have tangible results, the entire community can see it will reduce our dependence of energy. It is the "Power of Community" or the "Three C's" which they say is Community, Commitment and Conservation. In fact they plan to create what is a "Power Down" community.
Ilana says that Power Down is a community focused green energy enterprise with a unique, innovative and cost effective solution to address the residential electricity efficiency improvement market. She says that the average household consumes 10,750 kWh of electricity annually and is the fastest rising demand sector. Ilana says that the traditional approach to address this problem relies on subsidized incentives to induce purchase of energy efficiency appliances or retrofits. This approach is both costly and inherently inequitable because it subsidizes the cost of energy efficiency programs for high income households and passes the costs on to the low and moderate income households and renters through rate increases. Power Down's solution merges social networking, behavioral economics, smart metering and monitoring technologies and community organizing to form green communities that compete with each other to conserve energy while contributing the savings to the welfare of their community and social causes. Think of it this way, if you are locked into a hot energy competition with your neighboring community you might not notice that your baseball team is falling further and further out of first place!
Republished with permission from Alaron's Energy Report Daily.