“The beatings will continue until morale improves.”
Today I filled up my fuel-efficient Toyota with 11.24 gallons of fuel at $3.80 a gallon.
And it’s only February.
I shudder to imagine what prices will be by the time driving season begins in earnest this summer.
With unprecented economic growth in emerging markets and consistent demand from the developed world, demand for crude oil continues to be high.
The fear is that, in the near future, the world will reach peak oil production. In fact, it is possible that we may already be there. Peak oil does not imply the world will imminently run out of oil, but it does suggest that production will begin an inexorable decline.
Some time before that point, the forces of supply and demand will make oil much dearer than it has been over the last hundred years. The United States reached peak oil production in 1970. Despite all new discoveries on- and off-shore, the United States has never reached this high water mark since. Granted, certain envirionmental policies may have slowed down the ability of oil companies to extract oil in particular parts of the country like ANWR in Alaska. But even if the government allowed drilling there, the estimated 10 billion gallons in ANWR are barely enough to provide the United States with slightly more than a year’s worth of consumption.
Furthermore, big oil companies are exploring farther off-shore and into deeper waters in the continental shelf to find oil, because most, if not all, of the on-shore super-giant oil fields have already been discovered.
We probably will not know whether we have reached the peak until several years after the event. But there will be signs.
Over short time periods, oil can be a volatile commodity that has rapid price movements in response to geopolitical news and supply data. Over the long-term, however, it tends to be relatively stable as the forces of long-term supply rise to meet those of long-term demand.
From 1986 to 2000, the price of oil averaged around $31 per barrel in 2011 dollars and hovered between a fairly tight price range. This all changed beginning in 2001. From January 2001 to December 2005, the average monthy price of oil jumped to nearly $43. From January 2006 to December 2010, the average nearly doubled to almost $79 per barrel.
The fact that oil prices continue to trend toward higher averages is a concerning one and will, no doubt, continue to exert pressure on our fossil-fuel intensive economy.
Oil is a nonrenewable resource. Once it is gone, it is gone.