Oil prices will go higher

Post ImageDriving to work earlier today, I noticed that some gas stations have raised prices again, this time to 102.9. I have never seen gas prices so high, and I never thought I would. I remember a few years ago when a litre of gas cost less than half what it does today. And the worst news of all? Oil prices are going to keep rising.

If you think I’m joking, read this Economist.com article. It does an excellent job of explaining things:

So far, however, the effect of higher prices has been surprisingly muted. Gas-guzzling America has seen GDP grow at a brisk clip, far outstripping many of its daintier peers in the rich world. Though high oil prices are contributing to America’s surging (and unsustainable) current-account deficit, they do not seem to be worrying consumers, who have kept on spending.

In part, this is because the oil-price records are an illusion, brought about by inflation. While nominal prices are at record levels, in real (inflation-adjusted) terms they are still well below those seen in the wake of the 1979 Iran hostage crisis, when the cost of a barrel of oil hovered around $90 in today’s dollars (see chart). Consumers are better-off now—in 1980, the median personal income in America was $16,800 (in 2003 prices), versus $22,700 in 2003—and economies are more fuel-efficient. Both of these things should cushion the shock of higher prices.

There are other factors to consider too. During the hostage crisis, OPEC deliberately kept prices higher than the market could bear – but it backfired. We became more fuel efficient as a result, something OPEC would not want to do again. There’s a theory though, that they have lost the control required to keep prices artificially high anyway:

With the exception of Saudi Arabia, its producers are pumping as much as they can—and Saudi excess capacity is in heavy crude that is harder to refine into the cleaner fuels demanded by rich countries. OPEC made a great show of raising its members’ combined quotas to 28m barrels per day (bpd) in June. But thanks to rampant cheating, they were already pumping at least that much, and possibly as much as 30m bpd, making OPEC’s promises little more than a carefully staged bit of public relations.

There is an excellent Wikipedia article covering the current increase in oil prices, complete with breakdowns of demand and supply, and some excellent charts. It too, says the worst is yet to come:

While oil prices are considerably higher than a year ago, they are still far from exceeding the inflation-adjusted peak set in 1980.

There are lots of people talking about the gas prices, obviously. The number eight search on Technorati right now is gas prices. And over on Flickr, you can check out some of the prices around the world as people take pictures and post them.

Here in Edmonton, you can keep an eye on gas prices at EdmontonGasPrices.com. And if you think it’s time to park the car, the ETS website is http://www.takeets.com.

Read: Economist.com

3 thoughts on “Oil prices will go higher

  1. Yeah, 113 is harsh…but take a look at Edmonton. We have multiple refineries all over the city! How could it possibly cost as much to get gas here as somewhere that it must be shipped to? I don’t get it.

  2. In the interest of NATIONAL SECURITY we should end our dependence on those countries which produce our oil and our terrorists. To that end we should NATIONALIZE the oil industry, cap gasoline at $1.00 a gallon a the pump, which would do more than anything else to stimulate our economy and keep the oil industry nationalized until those goals are reached. It may inconvience a few very very rich oil company people but in the interest of NATIONAL SECURITY we must all make sacrifices. We nationalized the railroads during the civil war and they seem to have recovered nicely.

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