Oil's New Equation

We all know by today that the oil price has been stabled at the prices which is much higher than last year. Even though "prices are not likely to stay in the $50 range as they have in recent months," O'Reilly wrote, "but it is even more unlikely they will retreat to late 20th century levels as low as $10 a barrel."

The conclusion is the oil is NOT cheap; especially for countries which are not (or not longer) oil producers.

While the reason of the increasing oil price is complex, Dave O'Reilly provides a simple explanation on the reason which he called it as "the new equation." This equation he talked about is the supply-demand relationship.

First of all there is a significant change in demand curve; China ALONE(!) accounted for about 30% of 2004's world oild demand growth. Furthermore, O'Reilly explained that "Global Energy demand is expected to jump 40% over the next decades. It took the world 125 years to consume the first trillion barrels of oil. We'll consume the next trillion within 35 years."

That's the demand side; let's see the supply side.

Today and in the future, the world oil supply will be harder and harder to meet its demand; it is more difficult to get easy oil and gas because of "geological difficulty with geopolitical instability". Many of the oilfields outside OPEC are maturing. In shorter words, finding oil is difficult and will be more difficult.

This "new" condition is reflected in the oil price, of course; therefore, rather than trying to finding something/somebody to blame regarding the high oil price, or debating on the neccesity of oil subsidy (such as in Indonesia), a more productive approach must be taken by most governments; understand the reason of the high oil price, and accept the fact that OIL IS NO MORE CHEAP NOR EASY TO GET.

While O'Reilly provides some recommendations (which could be read in his full article), I pick two points that I think should be applicable to all countries in the world:

1. "In the near term, conservation is our easiest, cheapest, and most reliable "new" energy source." Ordinary people like us should start to use oil wisely; do we need to drive our Hummer (or other hungry machines) to buy groceries or pick up our kids from schools?

2. "We should increase investments in viable alternative energy sources for the future." The alternatives include: solar, wind, water, and hydrogen.

Again, we have to face it. Oil is no longer easy and cheap; we have to do something about it.

Related articles in this site:

A Glance on Oil Reserve/Production

Subsidi BBM dan "the New Equation" di Dunia Perminyakan (Bahasa Indonesia)