A decade ago, oil cost about $10 per barrel. Peaking just below $100 in the years during and following the Iraq war but then falling temporarily during the recession, the price of a barrel of oil is now back up to more than $100 because of speculative fears over political instability in Libya and other countries in the Middle East.
Gasoline prices in the U.S. and around the world have been rising precipitously as a result. For example, the price of a gallon of gasoline in San Antonio, Texas, rose from $2.72 to $3.40 in less than two weeks. According to the Oil Price Information Service, the increase in each gallon purchased translates into $75.6 million more per day that Americans are collectively spending to fill up their tanks.
The political instability in Libya is a reminder that Americans are highly dependent on foreign oil and thus subject to shortages and situations beyond our country’s control. While oil accounts for the largest export in the Libyan economy, Libyan oil makes up only about 3 percent of the world supply. Even if Libya stopped supplying oil to the world market, the effect would not be so painful; however, fears of spreading instability have some concerned that oil could continue to rise beyond $100 per barrel and stay there for an indefinite amount of time.
“Our model shows volatility from now till who knows when,” said Roger Clark, senior manager of the Energy Center at General Motors. “Maybe forever.”
Mark Zandi, chief economist at Moody’s Analytics said oil will average at least $125 per barrel within five years.
On March 11, U.S. President Obama gave a press conference addressing energy and rising costs and expressed sympathy for drivers suffering under the increasing economic strain of higher gas prices. “For Americans already facing tough times, it’s an added burden,” he said. Obama also reflected on the possibility of releasing oil from the nation’s strategic reserves if the situation eventually requires that; however, he noted that the problems with America’s dependence on foreign oil are not going away any time soon. “When prices go back down, we slip back into a trance. And then when prices go up, suddenly we’re shocked,” Obama said.
Public opinion research suggests that many American’s understand the vulnerability of depending on foreign oil. Public Agenda found in its Energy Learning Curve survey that 80 percent of Americans are concerned that our economy is too dependent on foreign oil. However, the same survey showed that there is a significant amount of public resistance against any changes that increase the cost of driving. In addition, many of the survey respondents significantly overestimated the amount of the world’s oil they thought the United States produced; it is actually about 2.5 percent.
Unlike previous gas price spikes, the difference is that this time around most of the major vehicle manufacturers have viable alternative fuel vehicle options ready for consumption. In addition, the Obama Administration has made cleaner domestic energy one of its paramount causes. The federal government has pumped more than $4 billion alone to support the electric vehicle industry’s development.
U.S. Department of Energy Secretary Steven Chu addressed the recent 2011 National Electricity Forum about rising oil prices and the possible beginning of an energy shift in America. He noted that as global oil prices continue to increase, American “demand for clean power is the likely future.”
Many of the major U.S. manufacturers agree that changes are coming and that the days of the foreign oil guzzling internal combustion engine may be numbered.
“The way we see it, the current spike [in fuel prices] is just another indicator,” said Clark. Industry analysts see it as an inevitable sea change in America’s automotive future.
“The higher oil prices are, the more viable alternative energy and conservation efforts become,” Zandi added.
“We haven’t seen anything like this in 100 years,” said Bradley Berman, founder and editor of PluginCars.com and HybridCars.com. “There’s a real challenge to the internal combustion gasoline engine,” said Berman, and “we’re just at the beginning of this.”