Between 1986 and 1999 oil cost between $15 and $22 per barrel but in the last few years has shot up to nearly $80, carrying the price of gasoline upwards as well.[Average price for light sweet crude, 1965-2006, BP Statistical Review of World Energy, p. 10] Within months of its peak the price dropped to $50. Many factors affect fuel prices, including high corporate profits, speculation, the growing gap between depleting supplies and growing demand, and the so-called fear premium. Because fuel prices rise and fall with fears, the relative calm of 2006 lowered prices. With the return of disruptions, prices are more likely to rise steadily, swing wildly, or spike, as they did in the 1970s.
Energy demand is growing rapidly in Asia, particularly in China and India. [ 1, 2] By 2030 the International Energy Agency (IEA) predicts a 53% rise in global energy demand, with over 70% of that increase coming from developing countries. [ 1, 2]
Energy use in the U.S. also continues to rise. In 2005 the U.S. used 20.7 million barrels of oil a day, about three times as much as China. While Chinese demand doubled between 1995 and 2005, the increase was by 3.6 million barrels per day. At the same time, U.S. demand increased 2.9 million barrels per day. [BP Statistical Review of World Energy, June 2006]
The U.S. Energy Information Agency (EIA) expects world demand to grow to 98 million barrels per day by 2015 and 118 million barrels per day by 2030. [U.S. EIA International Energy Outlook 2006, Chapter 3] The IEA 2006 World Energy Outlook warns that continuing on this course makes countries vulnerable to supply disruptions and price shocks, while amplifying global climate change.
Spare production capacity – the ability to respond to sudden demand increases by bringing idle oilfields into production – has dropped sharply. In 2002 the EIA estimated 5.5 million barrels per day of spare crude oil production; today that capacity has shrunk to 1 million barrels per day. Most of that spare capacity is in Saudi Arabia and other OPEC countries.[International Monetary Fund, World Economic Outlook, September 2006, chart 1.16]
Events in several volatile regions could trigger rapid change in the world oil market. Iran sits on the eastern flank of the Straits of Hormuz through which most Persian Gulf oil travels. Its oil minister has warned that his country will use oil as a weapon against the imposition of sanctions. The president of the Council on Foreign Relations has warned that a Western attack on Iran could drive the price of oil to well over $100 per barrel. The Saudi ambassador to the U.S. has warned that military action against Iran would turn the whole gulf into “an inferno of exploding fuel tanks and shut-up facilities,” and world oil prices could triple.
Saudi Arabian infrastructure is vulnerable to attack by domestic militants, who are fiercely opposed to the royal family. An attack on the giant Ras Tanura loading facility, which processes half of all Saudi production – a tenth of global production – could take that oil off the market for at least 6 months.
Venezuela, among the top 10 countries in total proven oil reserves, supplies about 11% of U.S. imports of oil and petroleum products and wholly owns five U.S. refineries. Most Venezuelan crude oil not used domestically is exported to the U.S. A Venezuelan oil embargo would significantly raise U.S. oil prices.
