Why Oil Prices Are Going Up

If you have been reading or watching the News over the last few days, you would have noticed that the price of crude oil has been going through the roof. We have been given explanations, like, the oil companies are profiteering, companies like Coles are profiteering, increased taxes on fuel, oil companies increasing their refining costs, blah, blah, blah. All plausible explanations, but not the real one, because the real reason is very, very scary and that is why we don’t hear about it in the media.

Here is my simple explanation why the cost of crude oil and therefore everything else we use (food, goods, services) are also going up. Demand has outstripped Supply, or in another term you may have read about, Peak Oil. Look, I will make it even simpler for everyone. Here is a graph that Dave Cohen of ASPO USA has kindly let me use. It was used in a recent post to help explain why the oil prices have run-up of late and to quell the debate.

World Oil Supply & Demand (all liquids) from 2003-2007
Source: EIA supply and demand data

Pretty simple really. We can’t pump the stuff out of the ground fast enough (and it is a finite resource after all) to meet the growing demand from the worlds users i.e. all of us. So compare this to the price of oil and look what has happened this year so far.

Source: Economagic Data Series up to last week

Looks scary to me. What do you think is going to happen next? Well, I believe that we may, quite possibly, have reached the peak of global oil production or a very close to it. If there was a way to increase production and flog us more of the black stuff then the oil producing countries would jump at the chance with prices this high! It doesn’t matter if the Australian Government takes away a 5 cent tax, as that would be gobbled up in a matter of weeks with price rises.

So you want it simpler? Well, I will do my best. Here is a picture of the Lemon Meringue Pie that Kim made for my birthday yesterday (by the way, it was wonderful). I will use it for a peak oil analogy.

The pie is made up of three layers of consistencies. The top layer (the meringue) is soft and easy to eat, and the lemon is tart and thick and takes a while to consume, and the last layer is the crust which is hard. Getting oil out of the ground is very similar. When a oil well is first tapped the oil is easy to extract, and comes out under pressure and is just like the soft and easy to eat meringue layer of the pie. We, as a civilisation, have essentially used up all of this easy to extract oil. We are now into the bottom two layers of the pie. We are now extracting heavy crude and tar sands in various places around the world, and pumping the very last drops of the light crude in the Middle East. A bugger of a way to keep the addiction to oil going! It is all downhill from here on, in so far as extracting oil is concerned. A simple analogy, but I like it.

I won’t go on about the alternatives (ride a bike comes to mind), and I have probably harped on about this long enough, but have a look at Dave Cohen’s original post titled “The Age of Aquarius“, and get the real facts. While you are in a peak oil kind of mood, have a look at ASPO Australia for more local news on the issue. In the next few days, I will post some things that we can do to adapt to the shrinking supply of oil in our daily lives.

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