Friday, 26 August 2005

Why is oil so gosh-darned expensive?

Common sense on the 'oil crisis' from Thomas Sowell:

Why, then, are oil prices so high? There is no esoteric reason. It is plain old supply and demand. With the economies of huge nations like China and India developing more rapidly, now that they have freed their markets from many stifling government controls, more oil is being demanded in the world market and there are few new sources of supply. What should our government do? We will be lucky if they do nothing....
Sadly, "nothing" is what they never do. "Nothing" would have been good.

Today production is being held back, not by price controls, but by political hysteria whenever anyone suggests actually producing more oil ourselves. Organized nature cults go ballistic at the thought that we might drill for oil in some remote part of Alaska that 99 percent of Americans will never see, including 99 percent of the nature cultists.
People used to ask whether there is any sound if a tree falls in an empty forest. Today, there are deafening political sounds over oil-drilling in an empty wilderness. Nor can we drill for oil offshore, or in many places on land, again for political reasons. Nor can we build enough refineries or even build hydroelectric dams as alternative sources of power.

The problem is not for government to solve, except as always by getting the hell out of the way. Sadly, and again as always, don't expect that to happen any time soon. Pierre Lemieux makes the same point here with more graphs and figures, and takes the long view on the recent price hikes.


  1. I know some computer modelling people who do work estimating certain hydrological characteristics of oil and gas fields.

    Normally these guys work after the initial prospecting is complete, but before and in combination with engineers who are planning the resource extraction.

    Their workload started skyrocketing a couple of months ago, which suggests to me another couple of years to go before extra oil capacity reaches the market.

    Of course the lack of refining capacity worldwide is another problem area, especially in the USA.

  2. Articles such as this one, this one, this one, this one, and this one are also helpful in understanding high oil prices. Oil is a vulnerable point in world economies at the moment, because demand outstrips supply. Dissidents in parts of the world where oil is present attack oil pipelines and other infrastructure to gain increased political leverage, because such attacks have massive economic and political impact. Long pipelines are also very difficult to defend.


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