Unless you’ve been living on a boat in the middle of the ocean or underneath a rock, you know that oil prices worldwide have been dropping dramatically since June 2014. For many people, this seems like a great thing – filling up your car hasn’t been this cheap since the early 2000s! But for some, and I am not referring to the oil producers here, this news is not as welcome.
Investors all over have been very skittish with these recent developments and are being reminded of the volatility of the fossil fuel industry. This makes for a stronger argument in favor of divesting our University’s endowment from fossil fuels. Short-term gains and losses from these changes can impact the health of an endowment, but it is concern for the long-term health of our endowment that really drives divestiture from fossil fuels.
The recent downturn in the price of oil has come about by several different factors. Global vehicle fuel efficiency has improved and some European economies are slowing down, thereby reducing demand for oil. At the same time, American oil production has doubled in the past six years. So, oil that was once destined for US markets must now instead find a new market. With heavy competition for the same, limited market, producers must drop oil prices.
Simultaneously, members of OPEC (Organization of Petroleum Exporting Countries) are split on how to respond to these changes: larger producers (such as Saudi Arabia, the United Arab Emirates, and other Gulf countries) do not want to slash production levels – doing so would give greater market share to smaller producers (including Iran, Algeria, and Nigeria). The financial burden of these maneuvers is already running into the billions of dollars, and the price of oil is unlikely to recover anytime soon.
The fossil fuel industry is characterized by boom-and-bust cycles and every major change further illustrates the unpredictable nature of these commodities. If a company fails to perform as expected, investors redistribute their money into another company that will yield greater benefits. The leadership at Northeastern University has a financial obligation to divest our endowment from the fossil fuel industry and thereby protect the future financial health of our promising and successful university.