$4.00 Gas— Soon A Cause For Nostalgia

In 1973, just before the Arab oil embargo, we imported about 25% of our crude oil from abroad. When the automobile fuel-up lines at the gas stations reached their height that year, the politicians of the day raised their hands to the heavens like ecstatic Pentecostals and declared that they would break our dependence on foreign oil. That was then. This is now. Today, we import 70% of our crude oil from abroad. The good news is that our largest supplier of oil is Canada, still a foreign country, but not Islamic. The bad news is that we now buy far more oil from the Arab world than we did in 1973, and the scale of that monetary transfer from us to them exceeds anything previously seen in the history of the world.

Here’s what I’ve learned from some brilliant petro-geologists over the last few years at the Annual Conference on World Affairs. The world supply of oil is known with a high degree of certainty. After a century of extraordinarily sophisticated global petro-exploration, there simply are no more great undiscovered subterranean pools of oil left anywhere on the planet that can be reached with drilling techniques that would be feasible. For every oil field there is a history curve that catalogues the life of the crude petroleum supply in that particular area, and the curve has four phases to it—discovery, production, decline, and depletion. Many of the older early oil fields, like the Los Angeles basin on America’s west coast, have been depleted for nearly a half century. And every oil field has now transitioned through the discovery phase. So the reality is that every oil field on earth, still capable of delivering oil, is now in either the production phase or the decline phase. The point is this— the oil supply is running out. The only thing subject to intelligent debate is how much longer will the oil last before it’s gone? And nobody who engages in intelligent debate thinks that the oil will last another 60 years.

Meanwhile, thanks in large part to China and India, the demand for oil is growing exponentially. That says to me, “supply and demand is what moves the price up.” All the political rhetoric about oil futures speculation and hedge fund manipulation is a pure lie to make the American people believe that something can be done to lower gas prices. Government, if it had the will, could punish speculators and fund manipulators, and in so doing diminish their supposed influence on oil prices. But if Americans fully understood that our government is powerless to discover new oil fields, and powerless to force China and India to reduce their demand, then Americans would see the government for the ineffectual instrument that it is when the subject turns to oil price reduction. Here’s another thing to consider. In 2000, the Supreme Court believed that a background in the oil business was the best preparation for the Presidency, and the result was Bush and Cheney (this is partly tongue-in-cheek, but only partly). Next January, those two will probably go back into the oil business. That could explain a lot about oil pricing over the last seven years.

In a very short time, we Americans will be positively nostalgic about the good old days of $4.00 per gallon gasoline.