Summary
There are two main drivers of last week's temporary record: the value of the US dollar, which makes every commodity more expensive and the ever increasing US consumption of gasoline and distillates. The guzzlers on US roads are increasing, and powering vehicles with natural gas is not pursued vigorously enough.
The "Peak Oil Theory" is no longer a theory and finding oil will continue to be more and more difficult and expensive.
Analysis
Several factors contribute to current increasing oil prices, the most important being the current decreasing value of the dollar, which makes all commodities more expensive, and the increasing US gasoline consumption. Comparing data from the last EIA report with comp[arable data from twelve months ago, it is easy to note the trends: net oil imports up 4.3%, crude to refineries up 9.3%, motor gasoline production up 6.3%. Presently oil imports account for 65% of the American trade deficit and we are doing very little to improve this situation. For political reasons, we have embarked in subsidizing the ethanol-from-corn fiasco, but we have not vigorously attempted to pursue the usage of our plentiful natural gas for vehicle transportation, even though many European countries have been successfully using it for forty years. Fortunately signs of progress are beginning to emerge, as Honda Motors is starting to manufacture natural gas powered cars in the USA, and they have claimed that "the 2009 Honda Civic CX is the cleanest burning car that the EPA has ever tested". Some States, like Utah, have a growing number of natural gas filling stations, but this continues to be a regional phenomenon (in the North-East, for example, we have very few) and it is important and urgent to multiply these all over the USA to encourage the usage by fleets, by school buses, by government vehicles, taxis, etc.
It is important for Americans to pressure Washington to stop the corn to ethanol program, which is plagued by a tremendous amount of drawbacks, and to expedite and encourage the creation of a natural gas distribution network as much as possible. In fact the price of oil is destined to go steadily up. The "Peak-oil Theory" of Colin Campbell and Jean Laherrere is no longer a theory, and the cost of extracting oil in places like Shtokman in the Arctic, or at the depth of 35,000 ft of the recent BP-Petrobras-ConocoPhillips Tiber Prospect in the Gulf of Mexico, will continue to increase. Only a serious and committed American energy policy that addresses maximization of natural gas usage, commitment to renewables and energy conservation can minimize the pain of ever-increasing oil prices for the American people.
Michele Acerra consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
