Supply and Demand on Oil
Supply And Demand on Oil
The oil sector, with its past of prosperity and failure, is currently on a sharp downturn. The earnings are very low even for companies that have registered “record profits” in the recent past in the oil industry. This sharp drop in prices has forced the companies to withdraw more than 50% of their oil rigs and drastically cut down on the investments they make oil exploration and manufacture (“U.S. Energy” n.pag.). Approximately 200,000 workers in the oil sector have been laid off, and production of manufacture and drilling machinery has declined sharply (“U.S. Energy” n.pag.). The reason for this fall is the falling price of oil per barrel. The price per barrel has dropped by nearly 50% from June last year, hitting levels that were last seen in the worst of the recession in 2009 (“U.S. Energy” n.pag.). This year has seen a small amount of recovery in oil prices, but experts think that it might be years before oil prices go back to an average of $95 a barrel (“U.S. Energy” n.pag.).
This drop in oil prices can be linked directly to the pure economics of demand and supply. The United States’ domestic production has almost doubled within the past six years. This growth in domestic production has driven out imports of oil that now has to seek other homes. The U.S’s traditional suppliers; Nigeria, Algeria and Saudi, are suddenly fighting for markets in Asia. These oil producers now have no other options but to lower their prices to make any sales. Nonetheless, there are tale-tale signs that the oil production in the U.S and other producing countries is declining due to reduced investments in exploration. On the side of demand, Europe’s, as well as developing countries’ economies, are weakening, reducing their oil purchasing power. Automobiles are also nowadays being engineered to become more fuel efficient. All these developments suggest that the demand for oil is surely going down. Besides that, the world’s biggest importer of oil, China, has recently devalued its currency.
The devaluation just means that China’s economy is not doing very well either; more bad news for oil suppliers. In 2014 alone, the United States population consumed approximately “136.8 billion gallons” of gasoline (“U.S. Energy” n.pag.). This consumption, when converted to a daily basis averaged about “374.74 million gallons” of gasoline. The consumption, if compared to the United States’ all-time consumption of about “142.35 gallons” in 2007, fell short by 4%. After reaching an all -time high in 2007, gasoline consumption by highway vehicles declined slightly to about 134.6 billion gallons in 2008 (“U.S. Energy” n.pag.). The decline has since increased steadily with small margins to get to where it is today.
Because crude oil is a non-renewable source of energy, it is bound to run out after a certain duration of time. People often claim that there is enough reserve of fossil fuels to last centuries. This claim might be true, but if the current high production rates are anything to go by, the fossil fuel reserves might pass away sooner than is expected. The deposits of coal that remain are only enough to provide enough energy to last just until 2088 (“U.S. Energy” n.pag.). Even while trying to conserve the remaining stock of fossil fuels, people should also try as much as possible to minimize its effects on the environment. If improperly managed, the production and usage of fuel can result in severe environmental contamination. The carbon dioxide produced during fossil fuels burning is one of the main gases that cause global warming. The heightened temperature that comes with global warming in turn leads to “melting of ice caps” that increase sea levels and cause floods in low areas.
Structure of the Paper
The main problems surrounding crude oil are majorly on its production, distribution, consumption and sustainability. These problems include pollution of the environment due to the carbon dioxide produced during combustion of fossil fuels (“The World Factbook” par. 6). Sulphur dioxide is yet another environmental pollutant produced when fossil fuels are burnt. This fume is the principal causative agent of acid rain; acid rain could adversely affect crops by increasing soil acidity and corrode structures and iron sheets (“The World Factbook” par. 7). During transportation of oil through sea vessels, an accident could occur, and the oil could spill all over water. Oil spillages lead to the death of several aquatic plants and animals. Aside from these, the setting of petroleum prices has a greater economic influence on it (“The World Factbook” par. 7). This force results in the fluctuation of oil prices that are often witnessed. To make matters worse, the source of crude oil is not renewable; once it is exhausted, other alternatives would have to be sought.
There are many ways through which oil problems can be solved. One such way is formulating policies to regulate the exploration, production, pricing and consumption of petroleum. If strict policies are formulated to set environmentally friendly standards in all these activities, perhaps their adverse impacts on the environment might be reduced. Other measures that are being taken to curb these problems are the introduction of eco-friendly vehicles that emit less carbon dioxide and Sulphur dioxide into the environment. Oil transporting vessels could also be thoroughly inspected before being loaded with oil to ensure that they do not leak. However, in the event that they leak, each vessel should have with it, a team with proper equipment, to promptly combat the spill before it spreads. Apart from these measures, a lot can also be done at personal levels in homes. For instance, if one changes their vehicle’s oil, the initial oil could be taken to a service station for recycling.
The oil industry has been marred by many busts and booms. The industry had enjoyed much success until recently when fortunes started to decline for the consumers (“Top Five Facts” n.pag.). The suppliers of oil are still there in large numbers ready to supply their oil. However, the supply can only be possible if the demand is equally available (“Top Five Facts” n.pag.). This area is where the rain started beating the sector. As earlier mentioned, the United States has doubled their domestic oil production within the last six years (“Top Five Facts” n.pag.). The upsurge in domestic production reduces the quantities that need to be imported hence weakening the supply chain (“Top Oil Producers” n.pag.). Saudi, Algeria and Nigeria, who have been some of the leading suppliers of oil to The United States now, have to seek alternative markets in Asia and other countries (“Top Oil Producers” n.pag.). The recent technological advancements that resulted in the creation of energy-efficient vehicles also added to the supply chain’s woes. The information out there is that demand for fuel is reducing as people are finding alternative sources of energy and cutting down on oil consumption.
Despite the recent decline in demand, oil has always been and is still clinically significant to many world economies. Oil contributes directly to about 2.5% of the global GDP and one-third of humans’ total energy supply (“The World Factbook” par.9). The infrastructure used to transport oil and gas spans vast distances and creates employment to thousands of Americans across the over 50 states (“The World Factbook” par.9). This statement might be a hard pill to swallow, but the truth is that the renewable energy sources cannot entirely muscle out oil. The sector creates employment for many people, and I will stay that way for quite a long time.
Data and Methodology
A survey was conducted out on various aspects of the oil industry. Countries were ranked according to their fuel production and consumption. Other areas of the survey included questions on U.S. oil suppliers, the amount of oil available for the U.S. in the case of emergencies and the rate of inflation on oil prices. The survey revealed that the United States is the world’s leading consumer of oil at 18.8 million barrels per day (“How Much Gasoline” n.pag.). The European Union comes in second at 12.7 million barrels per day, followed by China at 10.76 million barrels per day (“How Much Gasoline” n.pag.). Japan, Russia and India follow in that order to fill the top 5 positions (“How Much Gasoline” n.pag.). On the producers’ side, Saudi Arabia leads the pack at 11.6 million barrels per day (“Top Oil Producers” n.pag.). The U.S. then follows closely at 11.2 million barrels a day followed by Russia, China and Canada respectively (“Top Oil Producers” n.pag.). As one can see from the data, The United States is one of the largest oil producers. Therefore, the country meets most of its oil needs at home. The nearly 13.7 million barrels that are imported daily come from Saudi Arabia, Nigeria, Mexico, Canada and Venezuela (“U.S. Petroleum Imports”).
In response to the amount of oil available for The U.S regarding emergencies, the survey discovered that the country had something called “The Strategic Petroleum Reserve.” This term refers to storage for emergency fuel kept by country’s energy department. The reserve is the world’s largest with a capacity of up to 713.5 million barrels (“U.S. Energy” n.pag.). On the rate of inflation and fuel cost, the survey discovered that fuel prices have reduced in the recent years. If the values are corrected for inflation, though, the figures change significantly (“U.S. Energy” n.pag.). In 1947, the price was $2.41 per gallon. In 1998, the figure dropped to $1.46 per gallon. By January 2015, almost half of the United States has oil prices at $2.00 per gallon or less (“U.S. Energy” n.pag.).
From the data, it is evident that the U.S is one of the most oil secure countries in the world. This is not only regarding production and consumption but also regarding reserve for emergencies. This might be the reason the economy of the country has for a long time been the world’s strongest economy. Despite this achievement, the country still imports some oil. These imports could come about due to the increased value of the dollar that makes it even cheaper to import oil than buy it locally. A look at the fuel prices over years could easily fool someone into believing that fuel price is always going down. This is not the case, though; the fuel prices keep going up but when corrected for inflation the prices appear to be steadily falling. To put it in simpler terms, the cost of living over the years has increased more than the cost of living. The purchasing power of the dollar then was also higher than its purchasing power now.
Conclusion and Future Agenda
As has been mentioned severally in this paper, fuel is not a renewable source of energy (“Renewable &Non-Renewable energy” par. 3.). It is simply a matter of time before humanity runs out of it. Some experts say that there is enough reserve of fossil fuels to last hundreds of years more (“Renewable &Non-Renewable energy” par. 5.). These projections were made some time back, but the rate of consumption from then has increased drastically. In a very short period, the world’s population has managed to deplete quite a significant amount of these reserves (“Renewable &Non-Renewable energy” par. 5.). At the present rate of production and consumption, the fuel reserves might get finished way before the projected period.
In light of this fact, the world needs to embrace alternative energy like the wind, solar and nuclear energy (“Renewable &Non-Renewable energy” par. 7.). These sources all have their upsides and downsides just like fossil fuels. For example, these mentioned alternative sources do not emit any harmful gases to the environment. On the flip side, they require substantial investments to operationalize and maintain them (“Renewable &Non-Renewable energy” par. 8.).Nevertheless, unlike fossil fuels, they are renewable and do not have expiry dates (“Renewable &Non-Renewable energy” par. 9.). Aside from these alternative natural sources, scientists have come up with new technology such as electric and hybrid cars to help reduce dependency on fossil fuels. The main advantage of hybrid and electric cars is also its main disadvantage. The fact that they depend on electricity make their economic sustainability unpredictable. They are an alternative to the conventional cars today because electricity is relatively cheaper today (“Economic advantages” n.pag.). One cannot tell what would happen to the price of electricity in future if everyone starts to drive an electric car (“Economic advantages” n.pag.). Presently, the electricity production in some regions is barely enough to meet the demand (“Economic advantages” n.pag.). Therefore, the future economic viability of the electric cars is not one to be fancied (“Economic advantages” n.pag.).
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