The price of oil is on everyones mind right now. Gasoline prices have sky rocketed and ‘experts’ are being interviewed on cable news shows around the clock. Some ‘experts’ are blaming sky rocketing prices on investors driving the price of oil up, while others point to more concrete issues as to why the price of oil is on the rise.
Some factors we should look at to understand the current oil markets.
1. About 85 million barrels of oil are produced each day.
2. About 86 million barrels of oil are consumed each day.
3. Global consumption increases by around 2.5 million barrels of oil each day.
4. A barrel of oil is about 19.5 gallons
5. The average oil company makes about 10 cents of profit per gallon of gas.
6. The US federal government places a 18.5 cents per gallon tax on all gasoline.
7. The US consumes about 20 million barrels of oil each day. That is 390 million gallons of oil each day.
8. The US produces just under 6 million barrels of oil each day.
Now I want to make some logical conclusions based on the data above.
1. Globally more oil is being used than is produced, which means stored oil is being utilized to meet current demands. (Not a good scenario, and certainly not sustainable.)
2. Global demand is increasing at a rate of about 912 million barrels more than current output each year at current growth rates. Estimates are that growth in China and India will be greater than current rates. So there is a good possibility that it could easily be a 1 billion barrel shortfall annually very soon. ( literally like 2-5 years from now )
3. Oil companies only have a margin of 10 cents to play with. So even with massive government controls the price of a gallon of gas would only drop one dime if oil companies were forced to make zero profits. Government subsidies could lower prices, but where will that money come from? The Federal government could also bring down the cost of gas by eliminating the gas tax, but only by 18.5 cents. So there is about 29 cents that can be cut off of the top of the price of a gallon of gas if we force oil companies to operate as non-profits, and for the Federal government loses all funding for road projects and maintenance. As sad as this sounds 29 cents isn’t much of a savings. And would it be worth it to have no new roads and current roads to be never be maintained, or for oil companies to have zero incentive to do business well?
So what can be done about gas prices?
Honestly, not a whole lot. When demand is so much greater than production, costs will be driven upwards. As China and India develop this issue will only continue to get worse. The oil companies will continue to be wealthier than anyone could imagine, but at some point the demand will outweigh production by such a large amount that oil will no longer be an affordable option for fuel. When will that be? I have no idea. But I wouldn’t be surprised if we are only 20-30 years away from this.
Now, if large quantities of oil were to be found and pulled out of the ground this issue could be resolved by once again making production equal or greater than demand. But the idea that we could pull enough oil out of the ground fast enough to meet the global growth demand for oil is not very likely, if anything new oil could hold off the scenario above for some period of time, but not for long.
This is the time to be researching real alternative fuel sources. They may be expensive now, but at some point they will be less expensive than oil, and we can’t simply wait until oil is no longer affordable, we need to be developing a plan now. I am a big proponent of solar technologies since when the sun is gone we will all be gone too, so it is a non-renewable resource that is essentially unlimited as far as we need to be concerned. A real solution would be to harness renewable resources rather than re-focusing on another resource that will be limited, like natural gases.
I have no doubt that the oil crisis will also start a third global war at some point. Oil makes our plastics, fuels our transportation, powers our gadgets and our homes. Our entire way of life is dependent on oil. The US, China nor India will accept rolling back to the stone age. Fighting will happen unless alternatives to oil are found and are used on a global scale.
Oil investors may be driving oil up artificially at the moment, but the facts above remain. And those factors are far greater than the investors. Oil is never going to be ‘cheap’ again. There is too much competition for a limited resource, too much demand, and too little production. It is a matter of global security that alternative fuel sources be utilized, but as long as so much money can be made as oil demand goes up, I am doubtful that anyone will take action and have the foresight to do what needs to be done to insure our nations, and the planets future security.