The price of gas

Henry Thompson

Oil prices have ranged from $75 to $150 per barrel over the past few years due to glitches in the delivery system, refining constraints, demand variation, and arbitrary government policy.  Believe it or not, the world is not running out of crude oil any time soon.  Current consumption is about 25 billion barrels per year and proven reserves 120 times that amount.  There is a supply of 120 years of oil even without new reserves (there will be) and reduced consumption as the price rises (it will).  With economic depletion, proven reserves would be half depleted as the price triples after a century.  This is hardly the typical doomsday story.  Potential reserves, including fracking and deep sea drilling, extend the supply for centuries. 

The problems with the oil market are above ground.  Governments own most of mineral rights.  There have been no new refineries built in the US for over three decades due to government policies.  Oil exploration and extraction are curtailed due to environmental regulations.  Investors in alternative energy sources are politically connected and push for subsidies and limits on burning fuels. 

Over the decades, the rising price of oil will lead to improved technology and alternatives if markets are allowed to operate.  There are two pieces of advice regarding the volatile price of gas.  First, there is no short term panic.  Second, do not expect government policies to offer solutions.