The price of a barrel of oil affects so many things. As fuel costs rise, the price of food rises significantly. The cost to transport consumer goods goes up as well. The price of oil even affects the cost of plastics, fertilizers, tires, asphalt and other petroleum products. Nowhere are rising fuel prices more evident, however, than at the pump.
It’s difficult to predict where gas prices are heading, but the U.S. Energy Information Administration (The EIA) attempts to do just that. This department of the U.S. Government examines the trends that influence gas prices and publishes the reports on a monthly basis.
According to the EIA, there is a 33% probability that the national monthly average retail price for regular gasoline could exceed $4.00 per gallon this summer. Right now, the EIA is making a prediction that gas prices will level off at around $3.86 per gallon. They’ve arrived at this conclusion by examining futures and options contracts for gasoline.
Other factors also influence the price of gasoline which could throw off this estimate substantially. Anyone who watches the news knows that there is significant unrest in some oil-producing countries. OPEC member counties are also free to adjust their production in response to the global increase in demand. Global economic growth, of course, also affects the demand for gasoline. Emerging markets such as China, Brazil and India continue to use vast quantities of oil. U.S. consumption has increased as well. In the simplest terms, it comes down to a matter of supply and demand.
When we look at that demand, the numbers can be frightening. According to the EIA, crude oil and liquid fuel consumption continues to increase – a 2.3 million barrel per dayincrease in 2010 set a new record and brought the total amount of oil needed on a global basis to 86.7 million barrels per day. That demand is expected to grow by 1.5 million barrels per day in 2011 and by an additional 1.6 million barrels per day in 2012. The EIA predicts that we’ll need 103.9 million barrels per day to meet demand in 2020 and 110.6 barrels per day to meet demand in 2035.
The problem is that as oil grows more scarce, the cost of extracting it rises substantially. Getting oil from shale, for example, is much more expensive that obtaining it from an oil well. The EIA examines oil production from a long-term standpoint, as well. That report states that the most prolific oil sources have already been identified and explored. All or very nearly all of Earth’s prolific petroleum basins are believed identified and most are partially to near-fully explored. Production is actually past its peak in many oil-producing areas. Still, technology may advance and getting to previously unreachable oil deposits may be achievable.
Given the long lead time needed to produce viable new energy technologies on a mass-market basis, consumers should not be complacent. It’s a good idea to save money and to practice frugality. High oil prices don’t just affect the cost of filling up your car – they affect the cost of living in general. The more that people spend on gas, the less disposable income they have available on other things. This causes the economy to slow down and unemployment to rise. That, coupled with the higher cost of consumer goods and food, make getting by more challenging.
It’s not all bleak, though. When gas prices reached a record high of $4.11 per gallon in 2008, people did cut down on driving and oil prices came back down to more reasonable levels. Let’s hope that will be the case again in the future. With so many factors influencing oil prices, however, nothing is certain.
Update: It is now being reported that there is $5 gas at some stations. We truly need to get a fix on our addiction to Oil and invest strongly into solar and electric cars.