Higher Gas Prices are Coming

February 10, 2011

By Judy Schropp Hoyer:

So far, rising gas prices have failed to change the habits of most American drivers, but the climb is not over yet.  Consider the following:

  • OIL PRICE HEADING TO $100 A BARREL. The price has risen to $91.38, a 34 percent increase since May. – Associated Press, January 1, 2011.
  • Gas prices on New Year’s Day were about $3 a gallon. A month earlier gas prices were about $2.80. A year ago they were about $2.60. In July 2008 they were about $4. In 2011 they’ll go up again as oil goes from about $85 per barrel to about $100.

Why? It’s not a simple supply-and-demand issue. There are actually three major factors, as I see it.

1. OPEC controls the production of a lot of oil and thereby sets the price – to some extent. Meaning, if they haul less out of the ground the price will go up, and OPEC can arbitrarily decide to haul less out of the ground.
2. The cost to oil producers to get the stuff out of the ground. As oil companies use up the stuff that’s closer to the earth’s surface, they’ll have to dig deeper and that costs more. The deeper stuff is harder to refine, too, so that’s two costs of production that will go up.
3. China and India want more. The United States is the biggest consumer (20%) of oil in the world and our consumption is expected to rise by 1% this year. But China’s consumption will go up by 5% this year and India’s will go up by slightly less than that. We have 311,909,000 people; China has 1,341,820,000 and India has 1,192,910,000. That’s a lot.

Unrest in the Middle East could, by itself, raise the price of oil as production is disrupted and oil companies take advantage of “market conditions.”

A Good Year for Profits

Now, is it necessary that prices go up? EXXON MOBIL CORP, CHEVRON CORP and CONOCO PHILLIPS posted $105 billion in profits last year. (BP – even after paying about $40 billion in costs relating to the Gulf Oil spill – posted profits of about $20.2 billion). Could the oil companies make do with a little less profit? Obviously. But why should they? And why would they?

Perhaps we should make do with a little less oil.

A Quick Non-Scientific Explanation of Oil

Petroleum is made out of fossilized organic materials. Stuff that was once alive died, rotted and was smushed into the ground and held under layers of rock where it was very hot. It turned into oil and gas. Oil is usually black or dark brown and thick. Since the Industrial Revolution began, most of the petroleum that humans have dug up out of the ground has been burned for energy. Today, we burn 84% of it. The other 16% is used to make plastic and pesticides, solvents, fertilizers and pharmaceuticals.

Of course, we’ll eventually run out of oil, even the hard-to-get stuff deeper in the ground. So, maybe we should use less.

Editor’s note:  Judy Hoyer is an attorney, mother and organic farmer. She joins CWN with an occasional essay on the state of the world.