Why the World wide Oil price increase?

September 6, 2005 7:55 PM

Why did the world wide price of oil go up after the hurricane?

I can see why the price of oil would go up in the USA because the pipeline shutdown and the refinery shut down, but wouldnt that make the price of oil world wide actually go down?
Because the USA wouldn't be able to buy so much oil?

posted by Iax to grab bag (13 comments total)

We can buy oil; we just can't produce as much. The demand is nearly the same. However the worldwide supply has been reduced from the destruction to oil rigs. Thus price goes up.
posted by rolypolyman at 8:00 PM on September 6, 2005

IAN an economist, but this seems to be a pretty clear case of supply and demand. Demand remains constant (well, it's increasing all the time, but relatively constant) and supply goes down. So the price goes up. It might be more complicated than this.

"Because the USA wouldn't be able to buy so much oil."
Unless oil use actually drops, this reasoning doesn't make sense. Oil use hasn't dropped yet. Maybe if more people carpool.
posted by mai at 8:00 PM on September 6, 2005

Not only did the refineries shut down, but we're hearing (here in Oklahoma) that most of the exploration platforms in Katrina's path are simply gone. Something like 20 platforms have vanished.

Since a good portion of the US oil and natural gas supply comes from those platforms, oil prices worldwide went up. Anytime anything bad happens to a source of oil, the worldwide price goes up. Uncertainty makes for big price spikes, and that's part of what happened last week.

The refineries are starting back up again - it's not like you can flip a switch and turn on a refinery, because it's a process. In about five days those refineries will be back to production. In addition, a major pipeline that was damaged by the hurricane has been repaired and deliveries to the east coast are back to normal through that pipeline. Gasoline prices are easing a bit, but the days of 99 cent/gallon gasoline are probably over.
posted by lambchop1 at 8:54 PM on September 6, 2005

lambchop1-I used to be able to buy 87 cent gas when I lived in Tennessee in '99-'00. I miss that.

Are you named after the band? I love Lambchop.
posted by evariste at 9:02 PM on September 6, 2005

the price goes up not because there are shortages now but because there MIGHT be shortages in the future due to disrupted exploration. Now if that information turns out to be false the price of oil will decrease and with it gas prices at the pump (holds breath)
posted by any major dude at 9:26 PM on September 6, 2005

Thanks for the responses
So its the oil RIGs and the oil exploration loss that is causing the price increase?

I had forgotten about the rigs, I wsa only thinking that even though the demand for gas is the same, without the refineries, whats the point in buying the oil?
posted by Iax at 10:07 PM on September 6, 2005

Maybe it's the pessimist in me, but I somehow doubt the worldwide oil supply has taken a significant hit with the loss of the rigs in Katrina's path. The way I see it is that the large interest, highly US centric oil companies have come out of this unfortunate situation with an excuse to raise gas prices to the level that will help soften the upcoming blow due to decreased supply with ever-increasing demand.

US oil extraction is far, far lower than some of the OPEC nations. For instance, in 1996, US extraction accounted for approximately 8.6 billion barrels a day while the OPEC nations were producing over 64 billion barrels per day. The rate of consumption in the US is a lot higher than any other country on the planet. It accounts for almost 25% of the worldwide use of oil and, with those numbers, it is no wonder than the US relies heavily on importing energy resources (oil and hydro). I've read reports that pre-Katrina US oil extraction was at 97% utilization. With the hurricane, roughly 5% loss is expected for domestic oil production which, while important for US domestic reserves (since 92% is quite low in domestic production for such a high consumer) the overall impact on global production is largely unaffected (probably less than half a percentage point - in perspective, this is far less than the original Desert Storm impact and gas prices never reached their current levels).

I am worried. Katrina has provided a mechanism that allows a rather unsavory justification for the recent price gouge. However, what might lie below it is far more insidious. It's no secret that oil extraction is dwindling while exploration is increasingly being pushed to far more remote areas (which are very expensive to mine) and energy needs are ever-increasing. Viable alternate energy resources are still decades away so, as I mentioned before, the pessimist in me expects that the prices will most likely drop slightly as soon as the Katrina fallout is buffered, but I seriously doubt prices will drop back to pre-Katrina levels.
posted by purephase at 10:52 PM on September 6, 2005

Your billions should be millions, purephase.
posted by evariste at 12:42 AM on September 7, 2005

It's mainly a supply/demand thing, but it's not as clear cut as you'd think.

One of the events that occurs around a sudden supply-drop price rise is that demand temporarily goes a bit nuts as people panic buy, but this is then felt for a long time afterwards. People who rolled around on quarter of a tank before, now roll around on an almost full tank. Filling all of these tanks in a panic caused an unnatural spike in demand.

I think the US is going to need to wake up more to the fuel economy revolution. It's nothing too unusual in Europe these days to specifically buy a car to get 60mpg, but many cars in the US still roll around getting < 20mpg! Furthermore, the whole world needs to better understand the role of nuclear power, and how it can be made safer. Even some environmentalists are now promoting nuclear power due to its benefit in terms of the environment and reduced oil use.
posted by wackybrit at 1:45 AM on September 7, 2005

Just to give you an idea of how easily prices can be affected by what might seem to be small interruptions in production or distribution, two weeks ago a fire in Venezuela and a protest in Ecuador caused a price jump. Take a good look at that price, by the way -- it's just 20 cents less than the price of the same barrel (light sweet crude) today. Katrina caused a minor spike in oil prices, but the market has leveled off and we're back to prices from before the storm.

Wackybrit, as much as it'd be nice to hope for a fuel economy revolution, we have (as I see it) three things combining to make that unlikely -- lack of public transportation (not just intercity subways and the like, but intracity trains), larger raw land size combined with lower population density that makes things like intracity train systems more difficult, and most of all a refusal on the part of the government to tax gas heavily.

Besides, if you're looking for a culprit in the coming oil crunch, look at China. In ten years, they'll be consuming far far more gas than we ever do. Not that that gets us off the hook, but it does mean they'll be a big problem with a laxness in gas consumption and environmental law that'll make the US look like a bunch of Greenpeace hippies in comparison.
posted by incessant at 4:06 AM on September 7, 2005

evariste writes "Your billions should be millions, purephase."

Oops. Thanks. That's what I get for writing this stuff at 2am.
posted by purephase at 5:23 AM on September 7, 2005

I always figure gas prices are a little like the stock market -- it will spike up because someone says it's going to. Then eventually it'll come back down as ACTUAL supply and demand has its effect.
posted by dagnyscott at 7:00 AM on September 7, 2005

Plus that area also does extraction, exporting and importing - the first two being something that if compromised would drive the price up.
posted by abcde at 10:47 AM on September 7, 2005