The world is awash in oil, we are told. The newest Department of Energy report puts oil inventories at near record levels.
Then why is the oil price rising, and why is the gasoline price jumping up every other day? Actually, it's because the market is looking at another number -- 889. That's the number of U.S. drilling rigs looking for oil and gas this week, on shore and off shore. A year ago the number of active rigs was about 1,900.
Most of the big new oil reservoirs are expensive to develop. They are in deep water, or in the Arctic, or in low yield per well deposits like the Bakken Field in North Dakota and Montana. The market knows that those areas need oil in the $70-$80 range to justify development. And so the rigs wait.
The market's investors believe that the current slump in demand is temporary. Fish caught off the Oregon coast are shipped in diesel-driven freighters to China, to be processed and wrapped in plastic (from oil), and shipped back to a Pacific port. From there a diesel-powered refrigerated truck takes the fish to the Midwest. Our supermarkets have food from everywhere, wrapped in plastics to be carried home in plastic bags.
Check the labels for those additives, many made from oil.
Investors realize that our new energy bill calls for 36 billion gallons of biofuels per year by 2020, the energy equivalent of 27 billion gallons of oil. But we in the U.S. use more than 320 billion gallons of oil per year. If our entire corn crop were devoted to ethanol, it would provide about 6-7 percent of our U.S. oil needs.
It's not clear that anyone has the answer, but some tough choices involving lifestyles and conservation are ahead.
Rolf E. Westgard