High Gas
Prices
The Enormous Cost of Oil
By Daniel Muniz
Oil prices keep rising with no end in sight
with new records being constantly set. But most interestingly, the
high prices haven’t really brought about bigger new supplies into
the market, especially in the United States. So, how far can all of
this go on without triggering a global recession and catastrophic
inflation?
The oil crisis in itself has been predicted
well in advance so it is no real shock, except from the media, that there is now a surging
demand for crude oil. In fact, a bigger crisis may loom ahead in the
decades to come.
Two of the world’s largest populations, India
and China, do not have a real middle class and each nation has over a billion
people in its respective populations. But both countries are
emerging economies, especially China although India may not be that
far behind.
In the long term, both economies may
eventually consume gigantic portions of the world’s oil supply when
they develop into modern nations although China’s enormous
industrial capacity is already pushing prices higher. And the rest
of the world may also not be that far behind either as more
countries leave their third world status behind. As a result, demand
for oil goes much further than just the United States and Europe.
As for the short term, just about any type of current event in an
unstable world can cause the price of oil to jump.
There is plenty of turmoil and uncertainty in the world at any
given time to cause that to happen. And it doesn’t take much for a
regional crisis to unleash a new spike in prices especially since a
number of oil producing nations have unstable governments such as
Venezuela, Angola, etc.
Surprisingly, higher oil prices have not
produced gloom and doom in the United States other than from
rhetoric from Democrats bashing George W. Bush over it. Consumers
have not greatly altered their spending habits although paying more
at the pump does hurt. And many Americans have already moved to
great fuel efficiency because of other events, such as Californians
purchasing better home air conditioning units as the result of the
previous electricity boondoggle.
And today’s high fuel prices are far different
than from what happened in the 1970’s.
For one thing, the price increases have been
gradual instead of overnight. Next, they have followed more of
market conditions rather than from being part of artificially
controlled prices.
But the 1970’s brought also about massive changes that the big
oil producers would rather avoid this time around.
Back in those days, high oil prices created masses of angry
consumers, which in turn forced governments to implement changes
that encouraged fuel efficiency and greater conservation. Today, the
oil cartels are weary of allowing the price of oil to get out of
control because the backlash could result in enormous cuts in demand
by many governments. And also by angry consumers who demand that we
dramatically increase fuel efficiency across the board.
In a twist of irony, it is higher oil prices
that may lead to greater conservation and enhanced fuel efficiency
instead of the influence of environmentalists.
Unfortunately, the big petroleum companies
must also invest in their industry if they are to meet the enormous
demand for oil. That is not going to happen in the United States
because of fierce opposition to the expansion of the energy industry
which puts the public into an interesting impasse.
America needs more capacity and more
refineries to meet the increased demand for energy yet determined
opposition prevents that from happening. When demand is very high
but supply in proportion becomes markedly smaller, the price will
invariably increase. And tight capacity also makes the country
vulnerable to price spikes due to just about any kind of current
event or natural disaster.
But even though demand is high and constantly
increasing, environmental opposition is still very strong and
considerably organized. As a result, America will have to live with
higher gas prices until capacity is allowed to increase.
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