2000s energy crisis

Further information: [[:Gasoline usage and pricing and Price of oil]]

Medium term crude oil prices, (not adjusted for inflation)

Short term crude oil prices, not adjusted for inflation)

Since the mid 1980s the inflation adjusted price of a barrel of crude oil on NYMEX had been generally under $25/barrel and was still at this level in September 2003. A series of events led the price to reach over $60 by August 11, 2005, surpass $75 in the summer of 2006, fall to between $50 and $60/barrel in the early part of 2007, then rise steeply, reaching $92/barrel by October 2007 and $99.29/barrel for December futures in New York on November 21, 2007. Throughout the beginning of 2008, oil hit several new record highs. On February 29, 2008, oil prices hit an inflation-adjusted all-time peak at $103.05 per barrel, and reached $110.20 on March 12, 2008 , the sixth record high in seven trading days .

It remains to be seen if the rising trend will become a long plateau or continue to rise steadily. Prices of $100 (2007 US dollars) are equal to the inflation adjusted maximum of 1980, which was $95-100 per barrel in mid 2007 dollars. This has contributed to fears of an economic recession similar to that of the early 1980s. In the United States, gasoline consumption dropped by .5% in the first two months of 2008 in response to higher prices, compared to a drop of .4% total in 2007.

Commentators have attributed the price increases of this period to a variety of factors, including reports from the U.S. Department of Energy and others showing a decline in petroleum reserves, worries over peak oil, Middle East tension, and oil price speculation. Some events have had short term effects on oil prices, such as North Korean missile launches, the crisis between Israel and Lebanon, tensions over Iranian nuclear energy, unrest in Nigeria and the declining nominal value of the U.S. dollar.

Supply

An important contributor to price increases has been the slow down in oil supply growth, which has continued since oil production surpassed new discoveries in 1980. In addition, turbulence in the Middle East, the world's largest oil-producing region, has led to decreased exports, especially civil unrest in Iraq after the 2003 U.S. invasion. Outside the Middle East, Venezuela has experienced strikes and political unrest, and there is growing instability in West Africa.

Leonardo Maugeri, who in late 2006, when oil fell from $75 to $60 per barrel, predicted prices would continue to fall, maintained at that time that oil producing nations have avoided digging new wells since the mid 1980s, when large amounts of petroleum drove down the price of oil.

Alternatively, lower production rates may be due to the fact that oil's historically high ratio of Energy Returned on Energy Invested continues a significant decline. The increased price of oil also makes other, non-conventional sources of oil attractive to businesses. The most prominent example of this are the massive reserves of the Canadian tar sands. They are a far less cost-efficient source of heavy, low-grade oil than conventional crude, but with oil trading above $60/bbl, the tar sands have become very attractive to exploration and production companies. Recent months have seen billions of dollars invested in the tar (bitumen) sands.

In view of tighter supplies worldwide, terrorist and insurgent groups have increasingly targeted oil and gas installations to maximise both mayhem and political gains. Sometimes, such attacks are perpetrated by militias in regions where oil wealth has produced little tangible benefits for the local citizenry, as is the case in the Niger delta. The terror factor adds an additional premium, including insurance costs, to the price of oil.

Even if total oil supply does not decline, increasing numbers of experts feel the easily accessible sources of light sweet crude are almost exhausted and in the future the world will depend on more expensive sources of heavy oil and renewable energy sources. CERA (a consulting company wholly owned by energy consultants IHS Energy) do not feel this is such an immediate problem. However, other organisations, such as the International Energy Agency (IEA), are much less optimistic in their latest assessments.

Causes

Labor strikes, hurricane threats to oil platforms, fires and terrorist threats at refineries, and other short-lived problems are not solely responsible for the higher prices. Such problems do push prices higher temporarily, but have not historically been fundamental to long-term prices increases.

One more long-term fundamental cause of rising prices is that global oil production will decline at some point, leading to lower supply. This is because there is a limited amount of fossil fuel, and the remaining accessible supply is consumed more rapidly each year. Increasingly, remaining reserves become more technically difficult to extract and therefore more expensive. Eventually, reserves will only be economically feasible to extract at high prices. Although there is much contention about the exact timing and form of peak oil, there are very few parties who do not acknowledge the concept of a production peak is valid. Some claim oil is of abiotic origin, and rapidly self renewing, though this theory has few remaining serious proponents. Others claim that oil producers, afraid that overproduction of oil may lead to price drops such as those of the early 1980s, have held back on the search for new oilfields.

Recently, there has also been increasing speculation on the oil market that tends to push up prices. Speculators try to preempt increased demand, decreased supply, or both, which leads to a long term increase in the price of oil. If speculators are wrong, current prices trends may become a price bubble, which would be followed by a price collapse. A July 14, 2005 Morgan Stanley report suggests that opinions of the oil market could burst just like a bubble if indications of declining Asian demand continue.

History

2003

The U.S.-led 2003 Invasion of Iraq caused upwards in the months running up to the invasion in March. Once it appeared the armed conflict would come to a quick resolution prices dropped again in mid 2003. The War coincided with a increase in global demand, but it also contributed by adversely affecting Iraq production and is associated with the high levels since.

2004

As a direct consequence of the Iraq War that followed the 2003 Invasion of Iraq, the oil production capacity of Iraq was cut from more than three to two million barrels per day.

Mid 2005 increase

Overnight gas price hike shown at a Chicago area BP station (background) on August 12, 2005. The Shell station (foreground) had not yet posted the 12 cent price hike.

After retreating for several months during the winter of 2004/2005, crude oil prices rose to new highs in March 2005. The price on NYMEX has been above $50/barrel since March 5, 2005. On March 16, 2005, the price surpassed the October 2004 high of $55.17 to close at $56.46. In April 2005 the price began to fall, reaching $53.32 on April 9. It then reversed course and headed to an all time high of $58.28, driven mainly by lingering concerns of a prolonged weak dollar. In June 2005 crude oil prices broke the psychological barrier of $60.

2005-2006 increases

In the United States gasoline prices reached a record high during the first week of September 2005 in the aftermath of Hurricane Katrina. The average retail price was nearly $3.04 per US gallon. The previous high was $1.42 per gallon in March 1981, which would be $3.20 per gallon after adjustment for inflation. In comparison, the average retail price of a litre of petrol in the United Kingdom was 86.4p on 19 October 2006. This equates to US$6.13 per U.S. gallon.

On January 17, 2006 crude oil for February delivery rose by $2.38 (3.7%) to $66.30 a barrel. This was the highest increase since early October 2005. Observers believe that violence in Nigeria, and Iran's friction with the West are responsible for this price increase. Continued concerns about Iran raised the price to $68.38 on January 31. However, due to rising stockpiles of crude oil and an abnormally warm winter, as of February 14, the price of crude had hit a 2006 low of $59.60.

Oil production in Iraq continued to decline as result of the ongoing conflict, decreasing to an output of just 1 million barrels per day.

"[The Iraq production shortfall is] a significant contributing factor to the high price of oil,"

— Dalton Garis, economist at the Petroleum Institute in Abu Dhabi

Mid 2006 increase

July 2006, San Francisco, California

Regular gasoline prices were averaging $3.036/gallon across the U.S. in August, 2006, slightly below the post-Katrina peak of $3.057. Adjusted for inflation, these U.S. prices were the highest in 25 years. The all-time U.S. inflation-adjusted record is approximately $3.20/gallon, set in March, 1981.

In July 2006, crude oil for August delivery traded over $79/bbl, an all-time record. The early and mid-summer 2006 runup is attributable to increasing gasoline consumption, up 1.9% year over year in the U.S., and geopolitical tensions as North Korea launched missiles, the Iran nuclear standoff drags on, and Israel and Lebanon went to war. The early spring 2006 runup in prices has been attributed to a number of factors, including continuing supply disruptions from the summer 2005 hurricane season (18% of Gulf Coast supplies were still off-line in spring '06), supply disruptions from the changeover from MTBE to ethanol, lingering concerns over Iran and Nigeria, and anticipation of higher summer demand. Hostilities in Nigeria alone have caused a supply disruption of 675,000 bbl/day. On August 7, BP shut down its Prudhoe Bay, AK field due to pipeline corrosion, bringing supply down by up to 400,000 bbl/day or about 8% of total U.S. production.

"Rationing by price" is a reality because near-stagnant world crude supply is not meeting ever-increasing demand, as witnessed by oil shortages in Africa, India, and China. It is possible that the apex of peak oil production has or will soon arrive, and an energy crisis is possible in the U.S., by far the world's biggest per capita oil user. With approximately 5% of the world's population, the U.S. uses about 25% of the world's oil and 40% of the world's gasoline produced each day -- about 2/3 of which are imports. This dependency leaves the U.S. highly vulnerable to any supply disruption and/or ratcheting up of prices.

The higher price of oil substantially cut growth of world oil demand in 2006, including an outright reduction in the oil demand of the OECD. Larger energy conservation and demand destruction will probably take place only after average U.S. gasoline prices are sustained in the $4.00-5.00/gallon range. This would equate to the psychologically-significant level of $150.00 or more per fillup of an average SUV or full-size pickup truck, or $500 for filling up RVs.

September 2006 decreases

Oil prices began to decrease during September 2006, closing below US$66/barrel on September 11. The U.S. national average gas price dropped to US$2.70/gallon in early September, down US$0.11 from the previous week. Some cities were seeing average prices below US$2.40/gallon.

As of September, prices continued to fall, and the average cost of gasoline per gallon (U.S. nationwide) is below US$2.50. On September 19, crude oil fell US$2.14 to a 6-month low of US$61.66. The recent significant fall in the price of crude oil has led some to speculate that price of gasoline may fall to as low as $1.15/gallon By October 3, the price closed at US$58.68, its lowest close since mid-February. Reasons for the recent price decreases have included easing tensions with Iran, ample supply and the lack of hurricane activity in oil-producing regions of the Gulf of Mexico.

After news of North Korea's successful nuclear test on October 9, 2006, oil prices rose past $60 a barrel, but fell back the next day. Also, for several days in early October, oil prices bounced around the $60 mark on possible news that some OPEC countries would cut oil production by 1,000,000 barrels a day. OPEC had not cut its production since December 2004. However, the oil market has lately seemed to shrug that news off, especially considering that Saudi Arabia said that no such agreement exists (to cut production).

On October 11, oil prices fell below US$58 for the first time since February. Days later, on October 20, a barrel of crude oil closed at US$56.82 per barrel. The same day, OPEC declared that they would cut production by 1.2 million barrels per day in order to arrest the sliding price, the first drop since December 2004.

Mid 2007 increases

The US national average (as of May 16. 2007) was $3.09, and some parts of the West Coast were selling regular unleaded at $3.33/gallon (e.g. San Francisco and Los Angeles). On NYMEX, a barrel was trading at $73.93, based on civil unrest in Nigeria. A pipeline disruption in the North Sea has also bumped the price of Brent Crude up to $79.64 (an all time high).

Legislation from the Democratic-controlled U.S. Congress, from approving the No Oil Production and Exporting Cartels Act of 2007 (where the Sherman Act is amended towards foreign companies acting as cartels), and hearings (as of 5/22/2007) from the House Energy and Commerce Committee's Oversight and Investigations Subcommittee will address the following: price gouging (especially from oil companies) as a federal crime, and the intervention of the Joint Economic Committee led by Senator Charles Schumer to which lawmakers should intervene where the current corporate mergers (Exxonmobil, ConocoPhillips, Chevron, Shell) should break up, as a way to protect American consumers.

The "NOPEC" bill passed the U.S. House of Representatives with a 345-72 vote on May 22, 2007.

On September 12, 2007 oil prices rose to an all-time high of $80 per barrel, which surpassed even the highs of the early 1980s. High prices and restricted supplies have increased the concerns of those who believe that peak oil is either imminent, or may have already passed, because of the implication that oil supplies will not increase significantly beyond that point, and in the longer term a decline will occur. It should be remembered that some of this trend in prices is partly due to the slide of the dollar against other currencies. Measured in Euro for example, as the dollar has been falling steadily, the price of oil appears much less volatile. This results in worldwide price gains being relatively mild, but as the dollar loses its value against the euro, oil prices in the United States rise because they are priced in dollars.

Late 2007 increases

On October 19, 2007, US light crude rose to a new height of $90.02 per barrel due to a combination of ongoing tensions in eastern Turkey and the reducing strength of the US dollar. Prices fell briefly on the expectation of increased US crude oil stocks, however they rose again rapidly to a peak of $92.22 on October 26, 2007 when stocks were revealed to have instead fallen.

Prices increased throughout late October and early November. On November 7, 2007 light crude oil reached another record, closing at $98.10 per barrel. As of November 21, 2007 oil prices rose to a new high of $99.29 per barrel, leading to fears of the price breaking the $100 per barrel mark due to a Wall Street Journal report which stated that peak oil had arrived.

Early 2008 increases

File:Rwcgasppricesmall.jpg

March 15, 2008, Redwood City, California

On January 2, 2008 US light crude surpassed the psychological barrier of $100 before falling to $99.69, due to tensions on New Years Day in Nigeria and on suspicion that US stocks of crude will have dropped for the seventh consecutive week. A BBC report from the following day stated that a single trader bid up the price. Stephen Schork, a former floor trader on the New York Mercantile Exchange and the editor of an oil market newsletter, said one floor trader bought 1,000 barrels, the smallest amount permitted, and sold it immediately for $99.40 at a $600 loss. However, on January 3, oil rose to $100.05 a barrel in intraday trading. Oil fell back later in the week to $97.91 at the close of trading on Friday, January 4, in part due to a weak jobs report that showed unemployment had risen.

Despite news on weakened demand, the price of oil once again rose to $100.10 a barrel on February 19th after a Texas refinery fire, rumors about OPEC production cuts, and evidence that the supply of oil is decreasing faster than demand of oil. Oil prices rose above $101 a barrel February 27 2008.Oil prices surpassed $103 a barrel February 29 2008 as continued weakness in the U.S. dollar and the prospect of lower Federal funds rates attracted fresh capital to the oil market.

Oil prices continued to rise to $104 on March 3, 2008 continued by the weakness in the United States dollar. The OPEC on March 5 2008 accused the United States of economic "mismanagement" that it said is pushing oil prices to record highs, rebuffing calls to boost output and laying blame at the feet of the George W. Bush administration. Oil prices surged above $110 to a new inflation-adjusted record on March 12 2008 before settling at $109.92 as global production fell to a new low despite record demand, stoking serious concerns about the world passing the date of peak oil.Oil continued its soar skywards, hit $111 a barrel, on March 13 2008, before sliding back to below $110 amid fears of economic recession in the United States.. The record was again broken on March 17, 2008, with U.S. light sweet crude reaching $111.80.

Forecasted prices

Fatih Birol, chief economist of the International Energy Agency expressed his opinion in October, 2007 that oil prices will remain high for the foreseeable future due to rapid increases in demand from the huge developing economies of India and China. According to informed observers, OPEC, meeting in early December, 2007, seemed to desire a high but stable price that would deliver substantial needed income to the oil producing states, but avoid prices so high that they would negatively impact the economies of the oil consuming nations. A range of 70-80 dollars a barrel was suggested by some analysts to be OPEC's goal.

Some analysts point out that major oil exporting countries are rapidly developing; and because they are using more oil domestically, less oil may be available on the international market. This effect, outlined in the export land economic model, could significantly reduce the oil available for trade and cause prices to continue to rise. Particularly significant are Indonesia (which is now a net importer of oil), Mexico and Iran (where demand is projected to exceed production in about 5 years), and Russia (whose domestic petroleum demand is growing rapidly).

Others such as Matthew Simmons predict a rise to $300 a barrel or higher by 2013 as oil production continues to uncontrollably fall and demand continues to remain high, especially in China and India, which are not as affected by higher oil prices as the developed world.

Effects

The effect that rising oil prices have on a market is not directly proportional to the cost of crude oil. For example, while crude oil prices increased 400% from 2003-2008, United States gasoline prices did not rise by the same amount. This is because the profits of distributors and retailers, production costs (such as refining, transportation), and taxes are all part of the price of auto fuel.

There is debate over the effect the current long term elevation of oil prices will have. Some speculate that an oil-price spike could create a recession comparable to those that followed the 1973 and 1979 energy crises or a potentially worse situation such as a global oil crash.

Inflation and recession

Further information: [[:Oil crisis and Recession of 2008]]

The perceived increase in oil price differs internationally according to currency market fluctuations and purchasing power of currencies. For example, excluding changes in relative purchasing power of various currencies, from 2002-01-01 to 2008-01-01:

• In US$, oil price rose from $20.37 to nearly $100, about 491% growth;
• In the same period, the Taiwanese dollar gained value over the US dollar to make oil in Taiwan 4.53 times more expensive ;
• In the same period, the Japanese Yen gained value over the US dollar to make oil in Japan 4.10 times more expensive;
• In the same period, the Euro gained value over the US dollar to make oil in the Eurozone 2.94 times more expensive.

On average, oil price has increased approximately 400% for these areas, with the US population being the most affected due to the recent depreciation of the US dollar.

The effect of dollar value, exchange rates and metals

Because oil is almost always bought and sold in US dollars, even when this is not the currency of either vendor or buyer, it is easy to be confused by the movement of the dollar relative to other currencies. It is informative to contrast the price of oil against other currencies, and against other internationally traded non-perishable commodities such as metals. This article neatly illustrates this point, and provides European oil price graphs for the last 18 months or so against major currencies, and also the price of gold. It is apparent that some of the peaking could be seen as a symptom of a decline in the value of the US$, rather than high oil price per se. However, there is still a very clear upward trend visible in all currencies, although as the price of gold falls, it could be seen as a general devaluation of world economies. This European tribune article includes a stacked plot, allowing the relative drift of the currencies to be seen as well as a general inflation of all currencies against the gold price. In a later graph, it also illustrates the fact that the price of those metals whose extraction is energy intensive (aluminum is the best example, as the ore is moved long distances for refining) have very nearly kept pace with an oil price that has gone up nearly 3-fold over 4 years.

United States

File:XOI 3-year chart 2005-09-02.png

Three-year performance of the oil industry...

File:XOI 1-month chart 2005-09-02.png

...and one-month performance.

It is easiest to gauge the effects of oil prices in the United states, where comparison of oil prices to average income are simplified. One of the most closely watched measures is the price of gas. There are also many other items in the average United States consumer's basket of goods which produced from petroleum products.

Despite the rapid increase in the price of oil, neither the stock markets nor the growth of the global economy have been noticeably affected. Arguably, inflation has increased; in the United States, inflation averaged 3.3% in 2005-2006, as compared to an average of 2.5% in the preceding 10-year period. As a result, during this period the Federal Reserve has consistently increased interest rates to curb inflation.

United States and GDP

In the United States, for instance, each 1000 dollars in GDP required 2.4 barrels of oil in 1973 when adjusted for inflation, while this number had fallen to 1.15 by 2001. For calendar 1981, United States oil consumption was 5,861,058,000 bbl and GDP was $5,291.7 billion (chain-volume 2000 dollars), a ratio of $902.86/bbl. In 2005, consumption was 7,539,370,000 bl and GDP was $11,048.6 billion, a ratio of $1,465.45/bbl.

United States stock market

Template:Globalize/USA The increase in oil prices over two years was mirrored by an increase in stock values in the energy sector. Energy ETFs like XLE (an overall energy sector fund) and OIH (an oil service industry fund) did well during the period, with XLE's price increasing from $26 (01/01/2004) to $54 (3/2/2006), and OIH's price increasing from $60 (01/01/2004) to $143(3/2/2006).

The value of the stock in companies such as Apache and Conoco-Phillips rose sharply during this period. These prices increased more rapidly toward the end of August, particularly after Hurricane Katrina.

Wal-Mart shares continued their decrease in value that began with the increase in the oil prices. Over two years, stock in Wal-Mart dropped in value by 25% from $60 per share to under $45 per share. Earlier in August, Wal-Mart announced that higher than expected oil prices cut into the corporation's profits for the 2nd quarter of 2005. Since oil prices after the end of the 2nd quarter continued to rise, 3rd quarter profits from Wal-Mart are expected to be small. Because Wal-Mart's distribution system relies on the customer to drive to a large discount big-box store, increases in the price of fuel might discourage some customers from making the trip as often. Wal-Mart, like all retailers, will also face higher shipping costs to get goods from the factory to the stores. This will likely cause inflationary pressures.

Europe

In the developed countries of western Europe, the prices of transport fuels are made up of the price of the refined product, plus a substantial tax element, which can vary between roughly 2/3 and 3/4 of the total price. (in the UK nearly 70% of the price of a litre of petrol is made up of fuel duty and VAT. A doubling of the oil price would add perhaps 30% to the cost of fuel at the pump in the UK, if the duty was not changed.) These taxes are not harmonised, nor are different countries' budgets updated at the same time. As a consequence, people who live nearby will often find it worthwhile to drive over the border to fill up, despite the hassle and traffic congestion this causes. However, in general, by having a large tax fraction, governments have the benefit of some room for manoeuvre, to smooth sudden price shocks by relaxing and then slowly ramping back the fuel duties, and the population has lifestyles that are already well adapted to fuel prices that would appear very high to consumers in the USA (where the tax fraction is less than 20%). These two effects conspire to make European demand largely independent of the crude oil price, at least over short periods of a few years. The high prices also stimulate interest in hybrid cars and alternative fuels, as well as encouraging the use of public transport in cities, and are a major factor in limiting European urban sprawl.

Asia Pacific region (excludes Australia)

The Pacific rim had been experiencing oil shortages on an ongoing basis prior to Hurricane Katrina. Some countries are increasing production of biofuels to offset the higher costs of oil.

Developing Countries

High oil prices are likely to first affect less affluent countries, particularly the developing world, with less discretionary income. There are fewer vehicles per capita, and oil is often used for electricity generation, as well as private transport. A world bank ESMAP report has looked more deeply at the effect of oil prices in the developing countries.

Sub-Saharan Africa

High oil prices are hurting many countries in Africa, including Zimbabwe, Eritrea and Tanzania. High oil prices have created an oil supply instability, per barrel price instability or both. There are reports that this has led to fuel rationing being enacted in some cases. Many countries in Sub-Saharan Africa lack the foreign exchange reserves to purchase enough oil products at increasingly higher prices. These nations have little choice but to limit imports and/or ration their existing supplies.

Latin America and Caribbean

Venezuela's president, Hugo Chávez, came under increasing scrutiny as he began selling oil at lower-than-market prices to poor U.S. consumers, as heating oil, and to island nations in the Caribbean such as Cuba.

Persian Gulf States and Eurasian Arab-Islamic regions

Some stock markets in the GCC, notably in Saudi Arabia and Dubai, experienced a boom, roughly 100% index increase in the Saudi stock market. However, this boom was followed by a market crash. A number of planned projects to stir development, such as King Abdullah Economic City, have been proposed due to $29.3 billion surplus. On May 1, 2006 Saudi Arabia lowered prices on all hydrocarbon fuels for local consumption; 95 octane gasoline costs .606 USD/gallon (fixed price).

Personal transportation

Prior to the runup in fuel prices, many motorists opted for larger, less fuel-efficient sport utility vehicles and full-size vehicles in the United States, Canada and other countries. This trend is now reversing due to sustained high prices of fuel. The September 2005 sales data for all the vehicle vendors indicated SUV sales dropped while small cars sales increased compared with 2004 sales. There is also an ever increasing market for hybrid vehicles (e.g., Toyota Prius and Honda Civic Hybrid) and diesel engine vehicles (e.g., Volkswagen TDI and Mercedes-Benz E320 CDI) since they are more fuel efficient; since the 1973 energy crisis, the front-wheel drive passenger car has replaced rear-wheel drive as the preferred layout for energy efficient cars. There is increasing demand of "crossover SUVs" (i.e., SUVs based on unibody platforms) which are marginally lighter and therefore more fuel efficient than SUVs built on body-on-frame chassis.

For those interested in reducing their fuel use, and those whose salaries are too low to cover inflated prices, alternatives to personal vehicular transportation exist - public transportation, carpooling, motorcycles, scooters, bicycles, walking, and telecommuting. Where these are not viable options, families may relocate into inner city areas to find work or transportation.

Food security

Further information: [[:Risks to food security, Agriculture and population limits and Food vs fuel]]

Since the 1940s, agriculture has dramatically increased its productivity, due largely to the use of petrochemical derived pesticides, fertilizers, and increased mechanization (the so-called Green Revolution). This has allowed world population to more than double over the last 50 years. Between 1950 and 1984, as the Green Revolution transformed agriculture around the globe, world grain production increased by 250%.

As of late 2007, increased farming for use in biofuels, world oil prices at nearly $100 a barrel and growing consumer demand in China and India have pushed up the price of grain. Food riots have recently taken place in many countries across the world. As of December 2007, 37 countries faced food crises, and 20 had imposed some sort of food-price controls. Geologist Dale Allen Pfeiffer claims that coming decades could see spiraling food prices and massive starvation on a global level such as never experienced before.

Possible mitigations

Alternative fuels

Economists say that the substitution effect will spur demand for alternate energy sources, such as coal or liquefied natural gas. For example, China and India are currently heavily investing in natural gas and coal liquefaction facilities. Nigeria is working on burning natural gas to produce electricity instead of simply flaring the gas, where all non-emergency gas flaring will be forbidden after 2008. Outside the U.S., more than 50% of oil is consumed for stationary, non-transportation purposes such as electricity production where it is relatively easy to substitute natural gas for oil.

United States Strategic Petroleum Reserve

Template:Globalize/USA The United States Strategic Petroleum Reserve could, on its own, supply current U.S. demand for about a month in the event of an emergency, unless it were also destroyed or inaccessible in the emergency. This could potentially be the case if a major storm were to hit the Gulf of Mexico, where the reserve is located. While total consumption has increased, the western economies are less reliant on oil than they were twenty-five years ago, due both to substantial growth in productivity and the growth of sectors of the economy with little oil dependence such as finance and banking, retail, etc. The decline of heavy industry and manufacturing in most developed countries has reduced the amount of oil per unit GDP; however, since these items are imported anyway, there is less change in the oil dependence of industrialized countries than the direct consumption statistics indicate.

European fuel taxes

Template:Globalize/Europe Most economists see this as unlikely, partly because such price shocks could potentially be mitigated in the many developed countries which have high fuel taxes by temporarily or permanently suspending these taxes as fuel costs rise. France, Italy, and the Netherlands lowered taxes in 2000 in response to protests over high prices, but other European nations resisted this option. The issue came up again in 2004, when oil reached $40 a barrel causing a meeting of 25 EU finance ministers to lower economic growth forecasts for that year. Because of budget deficits in several countries, they decided to pressure OPEC to lower prices instead of lowering taxes. In 2007, European truckers, farmers, and fishermen again raised concerns over record oil prices cutting into their earnings, hoping to have taxes lowered. In England, where fuel taxes were raised in October and are scheduled to rise again in April 2008, there was talk of protests and roadblocks if the tax issue was not addressed.. This method of softening price shocks is even less viable to countries with much lower gas taxes, such as the United States.

See also

• Oil crisis
• Hirsch report

External links and sources

• Oil Price History and Analysis
• The Oil Drum
• TrendLines Research's "Barrel Meter" chart tracks oil price components: Geopolitical/Depletion Fear Premiums, Speculation, Currency Debasement, Extraction Costs & Lack of Surplus Capacity
• John V. Mitchell (Associate Fellow Chatham House, London): A New Era for Oil Prices; 32 Pages, August 2006
• Crude Oil Prices Per Barrel: Former Market Maker Reveals Where Oil Prices May Be Headed by Investment Director Karim Rahemtulla of Mt. Vernon Research
• Oil to $386.57 per Barrel! How derivatives drive oil prices up, despite ample supply in physical oil market, (9 Jun 06).
• Asia/Pacific: Scary Oil Andy Xie, MorganStanley economist for Asia, commenting on possibility that oil is financial bubble, (16 Jun 2005).
• Explanation of pricing mechanism in oil markets
• The real problems with $50 oil, An analysis by Henry C.K. Liu in Asia Times Online, details the economic impact of high oil prices.
• The Association for the Study of Peak Oil and Gas Newsletters
• Oil Prices and the Iraq War: Market Interpretations of Military Developments by U.S. Navy CCC
• Top Saudi Says Kingdom Has Plenty of Oil "261 billion barrels in reserve..."
• Graph of light crude oil price increase
• Oil Industry Combined Graph Graph of oil prices in relation to other fossil fuel prices.
• U.S. DOE EIA retail gasoline prices
• U.S. DOE EIA retail gasoline and diesel prices charts
• an Economist article about oil price inflation and concerns [4] (login required)
• World Bank article which states that US$90 per barrel is the equivalent of the 1980 oil shock (pdf file, page 18, 473kb)
• International Fuel Prices 2007 with diesel and gasoline prices of 172 countries
• EU Oil Bulletin Fuel prices in EU countries updated weekly, includes information on taxes and VAT.