For those of you who were planning to drive to some destination this Summer you might consider that gasoline will not be $3.50 a gallon, but more like $5.00. The reason is that the chaos in North Africa and the Middle East is going to disrupt the supply of oil, notwithstanding Saudi Arabia upping production to cover losses. They can't increase production enough.
While you might think that the fact that we import most of our oil from Canada, Mexico and Venezuela, we won't be impacted, but because oil is a fungible commodity (it can, by and large, go anywhere and be bought and sold by anyone) the price tends to be stable across the globe. If the Chinese are prepared to pay $120 a barrel for oil, then we will have to pay $120 a barrel.
And, oil is for so much more than gasoline and lubricants. It is used in plastics. What is the price at which we will go back to glass bottles for milk? And it is for fertilizer, and we face a global food shortage as it is.
Even if there were no problems in the Maghreb and Near and Middle East, the fact that India and China are becoming more industrialized would mean that the demand for oil would go up and the price would go with it.
All that said, In Trade seems to see no action on gas at even $4.00 a gallon in May.
But, I think things are changing in our world. $5.00 a gallon gasoline is likely part of that change.
UPDATE: Here is a look at where Libyan oil is flowing, as of 23 February 2011. But, remember, it is fungible.
And into this discussion comes the discussions about Peak Oil. From the Pentagon:
ReplyDeletehttp://www.jfcom.mil/newslink/storyarchive/2010/pa031510.html
"By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD."
Corey is spot on. Unless we find new fields, production will level off, while demand will continue to increase, barring a terrible world-wide depression.
ReplyDeleteWe need alternatives sources of energy.
AND, I have here embedded the URL Corey sent along. For ease of clicking. FYI: "JFCOM" is the US Joint Forces Command, down in the Norfolk, Virginia area.
Regards — Cliff