The High Price of Oil

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The price of oil has been rising despite the sluggish economy. Today gasoline prices have reached an all-time winter high. According to the U.S. Energy Information Administration, the average retail price for regular gasoline was $3.38 per gallon in January and the average retail price for diesel was $3.83 per gallon. In late February the average price for regular gasoline rose to $3.68 per gallon (see the AAA’s Daily Fuel Gauge Report). As of this writing, according to oil-price.net the price of WTI Crude oil was $109.62, and the price of Brent Crude oil was $125.44.

As if to explain the high price, oil-price.net carried an article by Tobias Vanderbruck titled Iran, Oil and the Strait of Hormuz. It has been suggested that troubles in (or with) oil-producing countries may be responsible for high oil prices. For example, the present crisis between Iran and the West has led the Islamic Republic to threaten the oil lifeline of the developed world which can be choked off at the Strait of Hormuz. This is where 20 percent of the world’s oil must pass.

Upward pressure on the price of oil may be found, as well, in the growing demand of rapidly developing countries like India and China. In such countries oil demand is growing. As people become more prosperous they acquire automobiles. They take trips in airliners. As industry grows, fuel is needed for trucks and factories.

According to the CIA World Fact Book, 113 countries have no oil reserves whatsoever. The countries with the largest stocks of proven crude oil reserves are, in order, are: – Saudi Arabia (262 billion barrels); Venezuela (211 billion barrels); Canada (175 billion barrels); Iran (137 billion barrels); Iraq (115 billion barrels); Kuwait (104 billion barrels); United Arab Emirates (97 billion barrels); Russia (60 billion barrels); Libya (46 billion barrels); and Nigeria (37 billion barrels).

In terms of proven reserves, the United States ranks thirteenth with only 20 billion barrels. If you combine the United States’ proven reserves with Canada’s, the largely English-speaking section of North America might prove self-sufficient if it wasn’t for the extraordinary oil consumption of the United States. America consumes about 19 million barrels of oil per day; that is about 6.9 billion barrels per year. At this rate of consumption, the United States will have used up its own and Canada’s proven reserves within 30 years.

Among the countries in greatest dependence, with no domestic sources of oil whatsoever, we find South Korea, Singapore, Sweden and Switzerland. The world’s second and third largest economies, China and India, have relatively small domestic reserves of 14 billion and 5 billion barrels respectively, with consumption rates of approximately 3 billion and 1 billion barrels per year. China and India could not exist five years upon their own reserves, and the situation of Japan is worse. The European Union consumes over 5 billion barrels of oil per year with dwindling domestic production. For those who see the present rise in oil prices as the beginning of a prolonged time of troubles, the closing of the Strait of Hormuz or any other temporary threat to oil supplies is of little moment. The greater issue is the rate of consumption in light of proven reserves.

One way or another, within the next 30 years, the world will have a painful transition to make. Oil stocks are going to be depleted and solutions will have to be found. Readers may be surprised to learn that Sweden is attempting to become the first oil-free nation by 2020. According to Larry West at environment.about.com, the Royal Swedish Academy of Sciences suspects that global oil production is peaking and the price is going to rise steadily. Therefore, Sweden has decided to seek alternatives to oil. In recent years many Swedes have replaced oil furnaces with wood pellet boilers. As a country without domestic oil reserves, Sweden is adapting to the reality of her position. Sometime in the future, the United States will follow this same road. 

Recently I had the opportunity to drive an electric car currently on sale at a local dealership. The efficiency of the vehicle and its performance astounded me, but you couldn’t drive it more than a few hours before having to recharge the battery. Undoubtedly this is the direction our technology and our economy is bound to take.

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About JR Nyquist

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