What Happens When Oil Reaches $125 per barrel?

April 17, 2010 - PRLog -- In 1972, the price of crude oil was about $3.00 per barrel.  Two years later it had gone to over $12.00.  For the next four years, the price stayed between $12.25 and $13.50 per barrel.  Along comes the Iranian revolution and the war between Iraq and Iran War, and oil prices went up to $35 per barrel in 1981. Following the Gulf War oil prices declined.  In 1994 prices attained their lowest levels since 1973.  Oil has moved pretty drastically over the past several years.  As I write this, it is $85.50 per barrel, trading around its yearly high.  It is projected to be at $100 per barrel within a year – if nothing dramatic in the world happens which would cause a greater increase.  

We live in a world that consumes over 80 million barrels per day of petroleum products.  From 1990 to 1997 the world’s oil consumption increased by 6.2 million barrels per day with Asian consumption accounted for all but 300,000 barrels per day of that increase.  Russian production declined over 5 million barrels per day between 1990 and 1996.  It is not difficult to see the perfect storm which is creating.   In 2002, there were over 6 million barrels per day of excess production capacity. By the end of 2003, that excess had gone below 2 million.  Then, during 2004 – 2005, that spare capacity declined to under a million barrels per day - in a world that consumes 80 million barrels per day.  

James Woolsey served in various capacities with the administrations of Carter, Reagan, Bush and Clinton, serving as the Director of the CIA from 1993 to 1995.   Reading his comments from various sources, puts all this in perspective.  Mr. Woolsey noted that there are numerous, compelling reasons to work as hard as we possibly can to break our dependence on oil.  What was his final analysis? “If oil reaches $125 a barrel again, approximately half the wealth in the world will be controlled by OPEC nations,” he says.  

For years, Woolsey has stressed that changes in Middle East power could easily cut us off at our knees, that our petroleum infrastructure is vulnerable to terrorists, and that we don’t have control over our supply or the stability of oil.  He noted that oil wealth allows dictators to control their people, and that eight of the top nine oil exporters are dictatorships or autocrats (all except Norway). He noted that the spread of Wahhabi doctrine plays a major role in Middle Eastern terrorist groups, who are fanatically hostile to Christians, Jews, Shi’ites, women, and modern culture. And, in a 2007 interview, he noted  that Saudi Arabia made $160 billion in 2005 from oil, and gave several billion to Wahhabis across the Islamic world.

Think about two scenarios:  First, think about a world in which half the wealth is controlled by OPEC.  Then think about a world in which even a fourth of the U.S.’s imported oil is replaced with domestically produced alternative fuels.   In the first scenario, it is not difficult to imagine how rough things may become.   In that second scenario, the U.S. trade deficit (and thus our economy) would favorably tilt drastically - virtually overnight. So how do we accomplish the second scenario?  First, we must demand that our Congress get beyond partisan politics and put the good of the country above the good of their party.  If they cannot or will not, we replace them because gridlock in Congress is threatening our well being.  The second thing we do is spread the message.  Alternative fuels have been relegated by opponents to solely environmental issues, with the goal being to make it appear that these matters are pressed largely by wildly liberal environmentalists.   While the environment is a critical component of alleviating dependent on foreign oil, the issue is much great than just an environmental issue.   Equally, or perhaps even more importantly in the short term, alternative fuels present an economic issue and national security issue.  The time to make this happen is now, not in response to a crisis when we are in the middle of it.

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About Lee Enterprises. Lee Enterprises is a biodiesel consulting firm specializing in project management, feasibility studies, business plans, and assistance with planning, market analysis, site evaluation, feedstock selection and procurement, process technology, evaluation, offtake distribution, financing, capital budgeting, and contract negotiations (for feedstock, off-take, transportation, construction, site purchase/lease, and plant management). They also own National Business Brokerage, Inc., a full service business brokerage firm specializing in the buying and selling of biodiesel plants. Lee Enterprises, 1503 East Kiehl Ave., Sherwood, AR 72120. (501) 833-8511. www.lee-enterprises.com