Late last week, the federal government’s Energy Information Administration posted the final global oil consumption figures for 2006. Although we pumped more oil than ever in 2006, on an average day, we consumed over 400,000 more barrels of oil than we produced.
This is not the first time demand has exceeded supply; in 2002 we used over a million barrels per day more than we pumped. How can it be that we use so much more oil than we produce over the course of a year and not run out? At any one time, there are millions of barrels of oil “in the pipeline,” whether they’re in transit (sometimes in actual pipelines) or refineries or in reserve inventories. When there’s too much oil “in the pipeline” producers slow the pumps, which draws down reserves, supply gets tighter and the price rises.
In 2002, the average price of a gallon of gas in the U.S. rose 29 cents from the first week of the year to the last ($1.15/gal-$1.44/gal). In 2006, the price rose 10 cents per gallon over the course of the year ($2.28-$2.38). When the oil cartels want to get rid of excess reserves (and raise prices), consumption will often exceed production. The EIA reports that the average price of gas is nine and a half cents per gallon higher this week ($2.80) than last week, almost 12 cents higher than at this time last year and 42 cents higher than at the end of December.
Are we slipping behind and catching up because we’ve passed the global oil peak? Clearly not. We set a production record in 2006, although the margin of increase (30,000 barrels/day) was tiny compared to previous years (1 to 3 million barrels/day), so it’s possible we’re approaching a peak. It might be a peak, it might be market manipulation; it’s hard to tell, because the people with the oil have such a lucrative reason to lie about how much they have.
Economic experts say demand from Asia – China and India particularly – is growing at a furious pace, which is expected to continue for a decade or more. Meanwhile, American consumers proved during hurricane-ravaged 2005, that $3/gallon gas prices (and higher) will not cause us to be more thrifty consumers nor will Congress impose fuel efficiency standards or build mass transit.
Maybe the oil nations are sitting on huge reserves of oil, enough to satisfy all the demand that’s out there and more. Maybe they’re just getting us all used to high-priced gas and will keep the supply just tight enough to keep the suckers on the line. On the other hand, maybe we are heading toward an oil peak and the oil producers are cashing in while they can.
Whether this the end of the age of oil or we’re merely victims of an incredible rip-off, it makes sense for us to conserve, to build mass transit, get rid of our SUVs, impose both fuel efficiency standards and slap a steep tax on gas, say 50 cents a gallon. I’d rather my money go toward building light rail and buses than paying bonuses to oil executives or let Saudi princes pass the cash along to terrorists.
Conserving our petroleum resources will pay other benefits. Even if we had oceans of oil, we know we can’t afford to burn it. The second section of the Intergovernmental Panel on Climate Change’s assessment report last week told us that global warming is creating very specific effects around the Earth. The report predicted the next wave of effects is at hand and that they will fall hardest on children and the poor.
Either we’re running out of oil and the years in which our consumption exceeded our production are the first warnings of oil deficits to come or our petrodollars will be pumped out of our pockets at an ever faster rate, creating personal and worsening national deficits.
Dick Cheney famously said, “Deficits don’t matter.” In this, as in so many other things, Mr. Cheney is wrong. Deficits, whether fiscal or oil, mean that we’ve lost control of our lives and need discipline to get it back.
(EIA oil data: http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html. Scroll to the bottom of the page and under the heading “International Data” click on the Excel spread sheet entitled: “World Oil Balance.”)
The Oil Deficit
Late last week, the federal government’s Energy Information Administration posted the final global oil consumption figures for 2006. Although we pumped more oil than ever in 2006, on an average day, we consumed over 400,000 more barrels of oil than we produced.
This is not the first time demand has exceeded supply; in 2002 we used over a million barrels per day more than we pumped. How can it be that we use so much more oil than we produce over the course of a year and not run out? At any one time, there are millions of barrels of oil “in the pipeline,” whether they’re in transit (sometimes in actual pipelines) or refineries or in reserve inventories. When there’s too much oil “in the pipeline” producers slow the pumps, which draws down reserves, supply gets tighter and the price rises.
In 2002, the average price of a gallon of gas in the U.S. rose 29 cents from the first week of the year to the last ($1.15/gal-$1.44/gal). In 2006, the price rose 10 cents per gallon over the course of the year ($2.28-$2.38). When the oil cartels want to get rid of excess reserves (and raise prices), consumption will often exceed production. The EIA reports that the average price of gas is nine and a half cents per gallon higher this week ($2.80) than last week, almost 12 cents higher than at this time last year and 42 cents higher than at the end of December.
Are we slipping behind and catching up because we’ve passed the global oil peak? Clearly not. We set a production record in 2006, although the margin of increase (30,000 barrels/day) was tiny compared to previous years (1 to 3 million barrels/day), so it’s possible we’re approaching a peak. It might be a peak, it might be market manipulation; it’s hard to tell, because the people with the oil have such a lucrative reason to lie about how much they have.
Economic experts say demand from Asia – China and India particularly – is growing at a furious pace, which is expected to continue for a decade or more. Meanwhile, American consumers proved during hurricane-ravaged 2005, that $3/gallon gas prices (and higher) will not cause us to be more thrifty consumers nor will Congress impose fuel efficiency standards or build mass transit.
Maybe the oil nations are sitting on huge reserves of oil, enough to satisfy all the demand that’s out there and more. Maybe they’re just getting us all used to high-priced gas and will keep the supply just tight enough to keep the suckers on the line. On the other hand, maybe we are heading toward an oil peak and the oil producers are cashing in while they can.
Whether this the end of the age of oil or we’re merely victims of an incredible rip-off, it makes sense for us to conserve, to build mass transit, get rid of our SUVs, impose both fuel efficiency standards and slap a steep tax on gas, say 50 cents a gallon. I’d rather my money go toward building light rail and buses than paying bonuses to oil executives or let Saudi princes pass the cash along to terrorists.
Conserving our petroleum resources will pay other benefits. Even if we had oceans of oil, we know we can’t afford to burn it. The second section of the Intergovernmental Panel on Climate Change’s assessment report last week told us that global warming is creating very specific effects around the Earth. The report predicted the next wave of effects is at hand and that they will fall hardest on children and the poor.
Either we’re running out of oil and the years in which our consumption exceeded our production are the first warnings of oil deficits to come or our petrodollars will be pumped out of our pockets at an ever faster rate, creating personal and worsening national deficits.
Dick Cheney famously said, “Deficits don’t matter.” In this, as in so many other things, Mr. Cheney is wrong. Deficits, whether fiscal or oil, mean that we’ve lost control of our lives and need discipline to get it back.
© Mark Floegel, 2007
(EIA oil data: http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html. Scroll to the bottom of the page and under the heading “International Data” click on the Excel spread sheet entitled: “World Oil Balance.”)