The facts behind rising oil prices and consumption

Oil prices have begun to increase dramatically over the past few years. This troubling surge in the price of oil, which is reflected in markedly higher prices at the gas pump, comes after a period of relative stability in the late 1980s and early 1990s—a period when some said the world was experiencing an oil glut.

The price of oil and one of its most visible by-products, gasoline, has soared in large part because demand for oil and oil by-products is at an all time high. The price of any commodity is a function of the interplay of supply and demand. The higher the demand in relation to supply, the higher the price.

The demand for oil and its by-products such as gasoline is so high for a number of reasons. One reason is that Americans, who constitute less than 5 percent of the world’s people but consume 25 percent of the world’s oil, are using more and more oil and gasoline and diesel than ever before — and demand is continuing to increase. Rising fuel consumption is caused in part by urban sprawl. As cities and towns spread out on the land, Americans are forced to drive more and more miles each year, driving up fuel consumption. Making matters worse, many among us are  driving larger, less fuel-efficient vehicles, putting additional demand on the world’s limited oil supplies.

But US is not alone in this scenario. China and other industrializing nations like India are also placing ever-increasing demands on global oil production. In China, for instance, new-found wealth is causing an upsurge in automobile sales. The Chinese who, for years, walked or bicycled to work, are increasingly turning to the automobile — buying a couple of million new vehicles a year now. As more and more Chinese turn from traditional forms of transportation to the automobile, gasoline consumption rises. “China is very important,” notes Randy Udall, an expert in US and global energy supplies. “As the Chinese try to live like Americans, it’s going to become increasingly expensive for us to continue our profligate ways.”

Unfortunately, most oil experts believe that there are no huge oil fields waiting to be discovered. In fact, the world’s oil companies haven’t found a gargantuan oil field since the 1960s. Although newspapers and television occasionally report huge oil field discoveries, these “big finds” pale in comparison to the oil fields discovered in the 1960s and earlier. And what is more, they’re tiny in relation to global oil consumption. For instance, in 2004 British newspapers and television reported on the discovery of a “huge oil deposit” in the North Sea. What readers and TV viewers didn’t realize was that this huge oil deposit contained only enough to fuel the world economy for five and a quarter days.

So that’s the oil picture. Sure, there’s oil shale and tar sands, but they’re costly and highly energy intensive to develop. The bottom line is that the US is nearly out of oil and global supplies may have peaked or may peak soon. In the not-too-distant future, world oil production is likely to begin to decline, forcing nations to become more efficient and develop clean, reliable, and affordable alternatives.

References: Wikipedia, The Homeowner’s Guide to Renewable Energy