Oil Price Increase Essay Research Paper Oil

Oil Price Increase Essay, Research Paper

Oil Reaching $30 a Barrel

“Can the world afford to buy oil at thirty dollars a barrel?” Ed Crook stresses the worldwide delay in satisfying heightened global demand. Consequently he predicted prices would rise to and beyond thirty dollars a barrel.

Oil dependent nations such as the United States and Europe are now becoming concerned at the high prices. In protest against fuel prices, French fishermen used their boats to block off the channel ports. Analysts are blaming the production chain for not exploiting other oil reserves as the global demand has been increasing since the 1980’s (although at that time exploitation of some European reserves was deemed uneconomical).

The world’s tanker fleet is operating at ninety-seven percent efficiency (a first time since 1973) while refineries in the United States are working flat out. OPEC points out that the only real ‘problem country’ in terms of low production is Saudi Arabia. Economically, it would be in Saudi Arabia’s best interest to limit its production and keep prices high (at a fine line so that other nations do not start searching for alternative energies), however, pressure from OPEC has spurred production. In time prices will fall, but for the time being analysts are predicting the worst. “Goldman Sachs has suggested the $50 a barrel as a genuine possibility.”

The countries that are expected to be hit hardest will be those in Europe due to the recent depreciation of the Euro (has it ever gained?) against the dollar. Analysts think that shortages are bound to pop up in the future. According to the business cycle model, supply fell when prices were low; however, when prices bounced back (demand) it took time before the supply met the demand. Although it is highly unlikely that we will see fifty dollars a barrel, thirty dollars seems to be on the cards. Analyst Ed Crooks and Gareth Davis believe both the United States and Europe can, for now, afford it.

Due to the uncertain and unpredictable nature of the ‘oil trade’, it is clear that the global economy should either become accustomed to the odd shortage or devise an improved model capable of forecasting future consumer and industrial needs for fuel. The bottom line may be that the oil industry for the most part would not want to commit to the unprofitable development of a new model since in the case of Saudi Arabia, the sudden demand put them into a position of absolute advantage (OPEC cannot control the oil trade efficiently and the Saudis are not stepping up production as quickly as the could-do). In the long run, it would be in the global community’s best interest to promote alternative energies. In my humble opinion, the sooner the world converts to non-depletable power sources the better. As was demonstrated by this oil shortage and others like it, the industrial world is becoming ever more dependant on fossil fuels. Eventually the time will come when conversion is necessary and by waiting, without taking the initiative, billions of dollars more will be wasted. Since the 1980s, the world economy has followed year after year of new record highs and the trend is likely to continue. As further industries and motorists become dependent on fossil fuels, the more costly it will become to undergo a conversion. Although it may be argued that at this point in time alternative energy, such as solar power, is both uneconomic (opportunity cost…Oil is a cheaper alternative), and incapable of supplying millions, this is mainly due to lacking funds, and the physical capital necessary to efficiently construct the apparatus.

Bibliography

1. herald, 2000, “oil prices on the increase”. pg. 5