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Essay on Oil Prices Increase
The price of light, crude oil on NYMEX has been above “$50/barrel since 5th March 2005” (Web 1). By October 2004 the price of crude oil had temporarily surpassed $55/barrel. In the United States of America, the Consumer Price Index rose by 0.6% compared to 0.2% for September.
The apparent cause is high demand and low supply of crude oil. High demand is coming from increased industry in emerging third world nations including India and especially China, which is developing a large car culture also the impact of the war in Iraq, hurricane Ivan's damage to offshore oil platforms in the Caribbean, YUKOS in Russia, OPEC's (most notably Saudi Arabia's) failure to bring prices down via dipping into spare capacity, civil unrest in oil producing West Africa especially Nigeria, worker's strikes and mechanical problems with oil production in Norway. It is an ever-growing list of explanations with new ones being added every month.
Some observers say that discovery rates for new sources of oil are not keeping up with production rates meaning we are burning up old oil discoveries without replacing them thereby creating future shortages. While some see these increases in the price of oil leading to a recession comparable to those that followed the 1973 and 1979 energy crises most economist see this as unlikely. All developed countries have high fuel taxes that decrease as oil prices increase and can be eliminated in the event of a dramatic price spike. The American Strategic Petroleum Reserve could serve a similar role in overcoming price increases in an emergency.
Moreover the western economies are about half as reliant on oil as they were thirty years ago. In the United States, for instance, “each $1000 dollars in GDP required 1.43 barrels of oil in 1970. In 2000 this number had fallen to 0.74”........
