Today, August crude oil closed at a new high of $140 per barrel and forecasters are saying that there may be another $30 or $60 per barrel to go before the market finds a balance. Everyone agrees that these high prices are having a negative effect on the world economy and resulting in a huge transfer of wealth to dangerous parts of the world. Several countries have started raising interest rates in a clumsy effort to restrain the price increases that are coming from this problem. I normally let the numbers on the left-hand side of this page do the talking, but the public conversation about high oil prices has gotten so crazy that I wanted to make a few obvious points.

First of all, this did not happen overnight and the underlying problem is not the greed of the big, bad oil companies or speculators (get over it Congress - complaining about profits doesn't solve the problem). The underlying problem is that rising standards of living around the world are currently outpacing the world's ability to find new, safe, sources of energy. Global warming aside, no one can deny that gasoline emissions are poisoning the atmosphere at increasing rates as the world's population grows and buys more cars. Today's poor urban air quality and high oil prices are side effects of peace and prosperity - two things that we all say we want.

The only lasting solution to this problem is to develop new sources of non-poisonous energy that are not owned predominantly by dangerous parts of the world. The sooner that happens, the better it will be for all of us. Unfortunately, until recently, there has been no incentive to do this, either financially or politically. Ironically, the only public policy today that is rationing gasoline demand and encouraging the development of new energy sources is the high gasoline price at the pump - the very thing that we are all screaming about.

In hindsight, the ideal solution would have been to sharply tax oil imports years ago and fund research for safe alternatives (like algae-based fuel or electric cars), but understandably, there was no political support for those kinds of measures. The best solution now is to aggressively fund the development of promising new energy sources while the incentives are high. The sooner we get a new energy source the better... for all of us. The initial costs may be high, but it wouldn't have to cost as much as the ongoing military presence in the Middle East and the benefits will last for generations.

June 26, 2008.

API is the American Petroleum Institute.
Brent crude oil refers to North Sea oil that trades primarily in London. It is quoted most often as the "world" price.
DOE is the U.S. Department of Energy.
EIA is the Energy Information Administration. This is a sub-branch of the U.S. government's Department of Energy.
IEA is the International Energy Agency. This organization is based in Paris, France. They issue monthly reports on the world oil situation and OPEC production estimates. They have ties to the OECD.
Imported or world or sour crude is primarily the type of crude oil referred to by OPEC and is known for having more than .5% sulphur. It tends to be $2 to $3 per barrel cheaper than the WTI price.
MBD stands for million barrels per day. KBD stands for thousand barrels per day.
OECD is the Organization for Economic Cooperation and Development. This group is composed of 30 member countries that share a committment to democratic government and market economies. The members are: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, South Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.
OPEC is the Organization of Petroleum Exporting Countries. There are thirteen countries in this well-known group: Algeria, Angola, Ecudaor, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates (UAE), and Venezuela.
OPEC-12 excludes Iraq.
OPEC's basket price is an average of the following seven types of crude:
Saudi Arabia's Arab Light
The UAE's Dubai
Nigeria's Bonny Light
Algeria's Saharan Blend
Indonesia's Minas
Venezuela's Tia Juana Light
and Mexico's Isthmus.
RBOB is reformulated gasoline blendstock for oxygen blending. RBOB conforms to industry standards for reformulated regular gasoline blendstock for blending with 10% denatured fuel ethanol (92% purity). RBOB is a wholesale non-oxygentated blendstock traded in the New York Harbor barge market that is ready for the addition of 10% ethanol at the truck rack (Source: NYMEX.com).
SPR is the Strategic Petroleum Reserve. This is an emergency supply of crude oil that is held in reserve by the U.S. government.
WTI is West Texas Intermediate or sweet crude. This is traded on the New York Mercantile Exchange and is commonly referred to in articles about domestic oil. It has less than .5% sulphur and tends to be $2 to $3 per barrel more expensive than imported crude.