The latest oil news and price spikes surrounding BP’s shutdown of Alaskan oil fields that generate 8% of US production underscores just how delicate the balance between supply and demand has become for oil. It doesn’t take a war or conflict in the Middle East to send prices shooting skyward these days. Any hint of a shutdown, hurricane, or political instability is enough. Supply is barely keeping up with demand, and there’s no slack to absorb disruptions.
The US typically gets blamed for its overwhelming demand compared to production, but we are becoming just part of that side of the equation. Growing economies in China and India equally hungry for oil, and their demand will likely outstrip ours in the future.
On the supply side, oil companies continue to insist that they’ve yet to peak and are pouring their record profits into exploration of new supplies and techniques. Yet in the meantime, infrastructure is falling behind, as seen by the disruption to refineries concentrated on the Gulf of Mexico during last year’s hurricanes and the recent shutdown of corroded pipelines in Alaska.
In the face of such challenges, I think global market forces will prevail. Already, high gas prices have made miles per gallon a staple of new car ads and increased the demand for more efficient hybrids. With gas at $3 a gallon, alternatives such as biodiesel and even pure electric become economically feasible. It’ll be exciting to see the new market that arises when cheap, plentiful oil is no longer a given.
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