As I write this, 11 super tankers are loading up and preparing to make a six week journey to the US Gulf Coast from Saudi Arabia. Collectively, they will carry around 22 million barrels of crude oil, and represent an attempt by Saudi Arabia to aid the lowering of, in their opinion, “unjustified” high global oil prices, and to dampen market sentiment. Saudi Arabian oil minister Ali Naimi has recently pointed out that there is no lack of supply in the market and that all storage that is accessible to Saudi Arabia is currently full. He said, “We really don’t understand why the prices are behaving the way they are.”
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It could be argued that many people around the world unwittingly share this lack of understanding. In the US, tensions are characteristically strained surrounding the topic of high gasoline prices. Who is to blame for them? What to do about them? How to control them? One school of thought argues that the one-third increase in gasoline prices over the last two years is Barack Obama’s fault and increased domestic drilling is the solution to bringing prices down.
Republican presidential candidate Newt Gingrich is proposing to remove obstacles to oil and gas development onshore, incentivise offshore drilling in coastal states and end the ban on oil shale development in the western USA. He has suggested that even the nation’s National Parks should not be out of bounds to prospective drillers.
Putting aside concerns about environmental, ethical and responsibility issues inherent in promoting a policy of unfettered drilling throughout the nation – would it actually do anything to affect the price of gasoline at the pumps throughout the US? The Financial Times’ Martin Wolf argues that in the US’s case, “producing more oil would have next to no effect on oil prices.” He rightly points out that oil is a commodity that is traded on a complex global market, and therefore its price is set and influenced in the main part by countries other than the USA.
With two-third oil production rises by 2020, the USA may become the most rapidly growing oil producer globally this decade. But what counts more towards setting the global oil price? Supply or demand? Wolf suggests that, “demand is now the principal cause of higher prices, though the tightening of sanctions on Iran would be more important.”
It seems unlikely that prices will fall in a climate of potential conflict in any key oil producing area. The uncertainty with Iran continues to curtail the country’s oil production and sway oil prices. Needless to say, the general consumer at the filling station cannot directly influence geopolitical tensions in the Middle East. Controlling demand, however, is something that we all have the ability to contribute to. In short, we need to use less oil.
The nationwide rush on filling stations in the UK this past week on the back of threats of an oil tanker drivers’ strike highlighted our deep dependence on oil as part of our everyday lives. It is clear that supply and demand in the oil sector will continue to occupy a precarious relationship, on both a global and domestic scale.