Today in the news I read why the oil prices have risen in the present and how they will rise up to $3.50/gal. this summer in the USA. We aren’t as bad as Europe since we get our oil from a plethora of sources and not just from the middle east.
There is a lot of political unrest in the middle east with Egypt, Tunisia, and now Libya which effect oil prices dramatically. Whenever there is political unrest, oil is one of the first calamities to be impacted.
With all this unrest, OPEC has claimed that they will be pumping more oil than before however there is a huge lag time between the well to the pump with transportation and refining.
Oil is priced globally, so it is not just in the US. Different oils do have somewhat different prices – West Texas is different from North Sea Brent – but on the whole “the price” of oil changes consistently apart from regional considerations.
Since around 60% of US oil is imported, it reflects the Brent price (near $111.00 per barrel this morning), which applies to about two-thirds of oil produced outside the US. The Brent price is affected more by regional politics, but even regional politics affects all oil prices.
The price really had not gone up much due to the Middle East issues until Libya, an important exporter, began to have problems. As of today (Feb 23, 2011) there is no real evidence of supply disruptions; the price increase is on worries that that could happen, as well as the worry that the troubles in Bahrain could spread to Saudi Arabia.
However – the main driving force behind increases in the price of oil over the past year is the perception that the global recession is winding down. If that is the case, demand for oil will increase and the cost must go up for a commodity in short supply. Despite continued unemployment in the US, gasoline consumption in the US has largely rebounded from the recession-related lows of 2009. Together with the continuing surge in China’s economy, this has moved the price from the mid $70s to the high $80s. The single biggest factor in the global price of oil is consumption in the largest consuming nation – the USA – and the single biggest factor there is US driving. 70% of US oil consumption is in the transportation sector. So the fact that US drivers are driving at 2007 levels is the primary control on long- to medium-term oil prices. The recent sharp increases (since last Sunday Feb 20, 2011) are jitters over the Libyan situation.
Many analysts are forecasting that we have or are about to hit “peak oil” -that is, we’ve already extracted the majority of the oil from the Earth, and production will only go down from here. Remember that oil takes millions of years to form, so once we run out, that’s it. As oil increases in scarcity, so too will its price. We’re already resortng to more drastic measures to get new stocks of oil, from deepwater drillng to movements to drill in pristine national park habitats.
Peak oil is not the time when the majority of the oil has been extracted. It is the time when half of it has been extracted. If there were 2 trillion barrels to start with, when the peak occurs, there will be 1 trillion left. But demand will exceed production and as you say, production will decline thereafter.
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