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From the mid-1980s to September 2003, the inflation-adjusted price of a barrel of crude oil on NYMEX was generally under $25/barrel. During 2003, the price rose above $30, reached $60 by August 11, 2005, and peaked at $147.30 in July 2008. Commentators attributed these price increases to many factors, including reports from the United States Department of Energy and others showing a decline in petroleum reserves, worries over peak oil, Middle East tension, and oil price speculation. For a time, geo-political events and natural disasters indirectly related to the global oil market had strong short-term effects on oil prices, such as North Korean missile tests, the 2006 conflict between Israel and Lebanon, worries over Iranian nuclear plans in 2006, Hurricane Katrina, and various other factors. By 2008, such pressures appeared to have a insignificant impact on oil prices given the onset of the global recession. The recession caused demand for energy to shrink in late 2008, with oil prices falling from the July 2008 high of $147 to a December 2008 low of $32. Oil prices stabilized by October 2009 and established a trading range between $60 and $80. New inflation-adjusted records The price of crude oil in 2003 traded in a range between $20â€“$30/bbl. Between 2003 and July 2008, prices steadily rose, reaching $100/bbl in late 2007, tying the previous all time inflation-adjusted record set in 1980. A steep rise in the price of oil in 2008 - also mirrored by other commodities - culminated in an all time high of $147.27 during trading on July 11, 2008, more than a third above the previous inflation-adjusted high. High oil prices and economic weakness contributed to a demand contraction in 2007-2008. In the United States, gasoline consumption declined by 0.4% in 2007, then fell by 0.5% in the first two months of 2008 alone. Record-setting oil prices in the first half of 2008 and economic weakness in the second half of the year prompted a 1.2 million bbl/day contraction in US consumption of petroleum products, representing 5.5% of total US consumption, the largest decline since 1980 at the climax of the 1979 energy crisis. Possible causes Demand World crude oil demand grew an average of 1.76% per year from 1994 to 2006, with a high of 3.4% in 2003-2004. World demand for oil is projected to increase 37% over 2006 levels by 2030, according to the 2007 U.S. Energy Information Administration's (EIA) annual report. In 2007, the EIA expected demand to reach an ultimate high of 118|Moilbbl/d, from 2006's 86|Moilbbl, driven in large part by the transportation sector. A 2008 report from the International Energy Agency (IEA) predicted that although drops in petroleum demand due to high prices have been observed in developed countries and are expected to continue, a 3.7 percent rise in demand by 2013 is predicted in developing countries. This is projected to cause a net rise in global petroleum demand during that period. Transportation consumes the largest proportion of energy, and has seen the largest growth in demand in recent decades. This growth has largely come from new demand for personal-use vehicles powered by internal combustion engines. This sector also has the highest consumption rates, accounting for approximately 55% of oil use worldwide as documented in the Hirsch report and 68.9% of the oil used in the United States in 2006. Cars and trucks are predicted to cause almost 75% of the increase in oil consumption by India and China between 2001 and 2025. In 2008, auto sales in China have been expected to grow by as much as 15-20 percent, resulting in part from economic growth rates of over 10 percent for 5 years in a row. Demand growth is highest in the developing world, but the United States is the world's largest consumer of petroleum. Between 1995 and 2005, US consumption grew from 17.7 million barrels a day to 20.7 million barrels a day, a 3 million barrel a day increase. China, by comparison, increased consumption from 3.4 million barrels a day to 7 million barrels a day, an increase of 3.6 million barrels a day, in the same time frame. Per capita, annual consumption by people in the US is 24.85 barrels, 1.79 barrels in China, and .79 barrels in India. As countries develop, industry, rapid urbanization and higher living standards drive up energy use, most often of oil. Thriving economies such as China and India are quickly becoming large oil consumers. China has seen oil consumption grow by 8% yearly since 2002, doubling from 1996-2006. Although swift continued growth in China is often predicted, others predict that China's export dominated economy will not continue such growth trends due to wage and price inflation and reduced demand from the US. India's oil imports are expected to more than triple from 2005 levels by 2020, rising to 5|Moilbbl/d. Another large factor on petroleum demand has been human population growth. Because world population grew faster than oil production, production per capita peaked in 1979 (preceded by a plateau during the period of 1973-1979). The worldâ€™s population in 2030 is expected to be double that of 1980. The role of fuel subsidies State fuel subsidies have shielded consumers in many nations from the price rises, but many of these subsidies are being reduced or removed as the cost to governments of subsidization increases. In June 2008, AFP reported that: In the same month, Reuters reported that: The Economist reported: "Half of the world's population enjoys fuel subsidies. This estimate, from Morgan Stanley, implies that almost a quarter of the world's petrol is sold at less than the market price." U.S. Secretary of Energy Samuel Bodman stated that around 30|Moilbbl/d|m3/d of oil consumption (over a third of the global total) is subsidized. But energy analyst Jeff Vail warned that cutting subsidies would do little to reduce global prices. Supply An important contributor to price increases has been the slow down in oil supply growth, which has continued since oil production surpassed new discoveries in 1980. The fact that global oil production will decline at some point, leading to lower supply is the main long-term fundamental cause of rising prices. Although there is contention about the exact time at which global production will peak, there are now very few parties who do not acknowledge that the concept of a production peak is valid. However, before the record oil prices of 2008, some commentators argued that global warming awareness and new energy sources would limit demand before the effects of supply could, suggesting that reserve depletion would be a non-issue. A large factor in the lower supply growth of petroleum has been that oil's historically high ratio of Energy Returned on Energy Invested is in significant decline. Petroleum is a limited resource, and the remaining accessible reserves are consumed more rapidly each year. Remaining reserves are increasingly more technically difficult to extract and therefore more expensive. Eventually, reserves will only be economically feasible to extract at extremely high prices. Even if total oil supply does not decline, increasing numbers of experts believe the easily accessible sources of light sweet crude are almost exhausted and in the future the world will depend on more expensive unconventional oil reserves and heavy oil, as well as renewable energy sources. It is thought by many, including energy economists such as Matthew Simmons, that prices could continue to rise indefinitely until a new market equilibrium is reached at which point supply satisfies worldwide demand. A prominent example of investment in non-conventional sources is seen in the Canadian tar sands. They are a far less cost-efficient source of heavy, low-grade oil than conventional crude, but when oil trades above $60/bbl, the tar sands become attractive to exploration and production companies. While Canada's tar sands region is estimated to contain as much "heavy" oil as all the world's reserves of "conventional" oil, efforts to economically exploit these resources lag behind the increasing demand of recent years. Until 2008, CERA (a consulting company wholly owned by energy consultant
The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the AyatollahKhomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil sector, with production being greatly curtailed and exports suspended. When oil exports were later resumed under the new regime, they were inconsistent and at a lower volume, which pushed prices up. Saudi Arabia and other OPEC nations, under the presidency of Dr. Mana Alotaiba increased production to offset the decline, and the overall loss in production was about 4 percent. However, a widespread panic resulted, driving the price far higher than would be expected under normal circumstances.
In 1980, following the Iraqi invasion of Iran, oil production in Iran nearly stopped, and Iraq's oil production was severely cut as well.
After 1980, oil prices began a six-year decline that culminated with a 46 percent price drop in 1986. This was due to reduced demand and over-production, which caused OPEC to lose its unity. Oil exporters such as Mexico, Nigeria, and Venezuela expanded production. Ending of price controls allowed the US and Europe to get more oil from Prudhoe Bay and the North Sea.
In November 1978, a strike by 37,000 workers at Iran's nationalized oil refineries initially reduced production from 6|Moilbbl|m3 per day to about 1.5|Moilbbl|m3. Foreign workers (including skilled oil workers) fled the country. On January 16, 1979, Shah of Iran, Mohammad Reza Pahlavi and his wife left Iran at the behest of Prime Minister Shapour Bakhtiar (a long time opposition leader himself), who sought to calm down the situation.
Other OPEC members
The rise in oil price benefited other OPEC members, which made record profits.
Richard Nixon had imposed price controls on domestic oil, which had helped cause shortages that led to gasoline lines during the 1973 Oil Crisis. Gasoline controls were repealed, but controls on domestic US oil remained. The Jimmy Carter administration began a phased deregulation of oil prices on April 5, 1979, when the average price of crude oil was US$15.85 per barrel (42 US gallons). Over the next 12 months the price of crude oil rose to $39.50 per barrel (its all time highest real price until March 7, 2008.) Deregulating domestic oil price controls allowed domestic U.S. oil output to rise sharply from the large Prudhoe Bay fields, while oil imports fell sharply. Hence, long lines appeared at gas stations, as they had six years earlier during the 1973 oil crisis.
As the average vehicle of the time consumed between two to three liters (about 0.5-0.8 gallons) of gasoline (petrol) an hour while idling, it was estimated that Americans wasted up to 150000|oilbbl|m3 of oil per day idling their engines in the lines at gas stations.
During the period, many people believed the oil companies artificially created oil shortages to drive up prices, rather than factors beyond human control or the US' own price controls. The amount of oil sold in the United States in 1979 was only 3.5 percent less than the record set for oil sold the year previously.
Many politicians proposed gas rationing; one such proponent was Harry Hughes, Governor of Maryland, who proposed odd-even rationing (only people with an odd-numbered license plate could purchase gas on an odd-numbered day), as was used during the 1973 Oil Crisis. Several states actually implemented odd-even gas rationing, including Pennsylvania, New York, New Jersey, and Texas. Coupons for gasoline rationing were printed but were never actually used during the 1979 crisis.
On July 15, 1979, President Jimmy Carter outlined his plans to reduce oil imports and improve energy efficiency in his "Crisis of Confidence" speech (sometimes known as the "malaise" speech). It is often said that during the speech, Carter wore a cardigan (he actually wore a blue suit) and encouraged citizens to do what they could to reduce their use of energy. He had already installed solar power panels on the roof of the White House and a wood-burning stove in the living quarters. However, the panels were removed in 1986, reportedly for roof maintenance, during the administration of his successor, Ronald Reagan, and were never replaced.
Carter's speech argued the oil crisis was "the moral equivalent of war". Several months later, in January 1980, Carter issued the United States, faced substantial shortages, both perceived and real, of petroleum. The two worst crises of this period were the 1973 oil crisis, caused by the Arab Oil Embargo of OAPEC, and the 1979 energy crisis, caused by the Iranian Revolution.
The crisis period, however, began to unfold as a result of events at the end of the 1960s. It was during this time that petroleum production in the United States and some other parts of the world peaked. Subsequently during the 1970s world oil production per capita peaked.
The major industrial centers of the world were forced to contend with escalating issues related to petroleum supply. The fact that Western countries had to deal with potentially unfriendly sources in the Middle East and other parts of the world to maintain supply made the situation especially complex.
The crisis led to stagnant economic growth in many countries as oil prices climbed. Though there were genuine issues with supply, part of the run-up in prices resulted from the perception of a crisis. The combination of stagnant growth and price inflation during this era led to the coinage of the term stagflation.
By the 1980s both the recessions of the 1970s and adjustments in local economies to become more efficient in petroleum usage had controlled demand sufficiently that petroleum prices worldwide began to return to more sustainable levels.
The period was not uniformly negative for all economies. Petroleum-rich countries in the Middle East benefitted tremendously from increased prices and the slowing production in other areas of the world. Some other countries, such as Norway, Mexico, and Venezuela, benefitted as well. In the United States, the states of Texas and Alaska, as well as some other oil-producing areas, experienced major economic booms due to soaring oil prices even as most of the rest of the nation struggled with the stagnant economy. Many of these economic gains, however, came to a halt as prices stabilized and dropped in the 1980s.
Production peaks around 1970
During the 1960s petroleum production in some of the world's top producers began to peak. Germany reached its production peak in 1966, Venezuela and the United States in 1970, and Iran in 1974. Canada's conventional oil production peaked around this same time (though non-conventional production later helped revive Canadian production to some degree). The worldwide production per capita peaked soon afterward.
Though production in other parts of the world was increasing the peaks in these important areas began to put substantial upward pressure on world oil prices. Equally as important control of the oil supply became an increasingly important issue as countries like Germany and the U.S. became increasingly dependent on foreign suppliers for this key resource.
1973 oil crisis
In October 1973, the members of Organization of Arab Petroleum Exporting Countries or the OAPEC (consisting of the Arab members of OPEC, plus Egypt and Syria) proclaimed an oil embargo "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war; it lasted until March 1974. OAPEC declared it would limit or stop oil shipments to the United States and other countries if they supported Israel in the conflict. With the US actions seen as initiating the oil embargo, the long-term possibility of embargo-related high oil prices, disrupted supply and recession, created a strong rift within NATO; both European countries and Japan sought to disassociate themselves from the US Middle East policy. Arab oil producers had also linked the end of the embargo with successful US efforts to create peace in the Middle East, which complicated the situation. To address these developments, the Nixon Administration began parallel negotiations with both Arab oil producers to end the embargo, and with Egypt, Syria, and Israel to arrange an Israeli pull back from the Sinai and the Golan Heights after the fighting stopped. By January 18, 1974, Secretary of StateHenry Kissinger had negotiated an Israeli troop withdrawal from parts of the Sinai. The promise of a negotiated settlement between Israel and Syria was sufficient to convince Arab oil producers to lift the embargo in March 1974. By May, Israel agreed to withdraw from the Golan Heights.
Independently, the OPEC members agreed to use their leverage over the world price-setting mechanism for oil to stabilize their real incomes by raising world oil prices. This action followed several years of steep income declines after the recent failure of negotiations with the major Western oil companies earlier in the month.
For the most part, industrialized economies relied on crude oil, and OPEC was their major supplier. Because of the dramatic inflation experienced during this period, a popular economic theory has been that these price increases were to blame, as being suppressive of economic activity. However, the causality stated by this theory is often questioned. The targeted countries responded with a wide variety of new, and mostly permanent, initiatives to contain their further dependency. The 1973 "oil price shock", along with the From Yahoo Answers
Answers:If the enviro-terrorists would allow the safest and most efficient form of energy, nuclear power plants, to be built again there would be no energy worries and our dependency on fossil fuels would drop precipitously.
Answers:Ethanol is not the solution. It costs nearly as much energy to produce as it delivers. If you factor in the impact on the food it becomes a loser all the way around. The solution is electricity. Electric cars work great but battery technology needs some work. Generating electricity will need to be done from wind, solar and coal. Creating oil from other nonfood crops is showing promise. Algae shows some the most promise with its quick growth and high oil content.
Answers:1979 energy crisis The 1979 energy crisis occurred in the wake of the Iranian Revolution. In the wake of protests, the Shah of Iran fled his country in early 1979 allowing Ayatollah Khomeini to gain control. The protests shattered the Iranian oil sector. While the new regime resumed oil exports, it was inconsistent and at a lower volume, driving up prices. In the United States, oil lines reappeared as they had six years earlier. During the period, many people believed the oil shortages were artificially created by the oil companies to drive up prices, rather than created by outside factors. Further, while in a market economy, shortages would be expected to drive up prices, causing a contraction in demand, of themselves they would be unlikely to result in queues at the gas pump but for artificial regulations and price controls. Many politicians proposed gas rationing, such as the Governor of Maryland, who proposed odd-even rationing (only people with an odd-numbered license plate could purchase gas on an odd-numbered day). This did not last long. President Jimmy Carter made symbolic efforts to encourage energy conservation, such as wearing a sweater, and installing solar power panels on the roof of the White House and a woodstove in the living quarters. However, Ronald Reagan ordered the solar panels removed and the woodstove was dismantled. Carter made a speech arguing the oil crisis was "the moral equivalent of war". More importantly, Carter as part of his administration's efforts at deregulation proposed removing price controls that had been imposed in the administration of Richard Nixon during the 1973 energy crisis. Congress agreed to remove price controls in phases, they were finally dismantled in 1981 under Ronald Reagan
Answers:We got here because the American mindset from the time of colonization and expansion has been "bigger is better". Look at the sizes of our homes, our cars... and our carbon footprint. Americans use so much energy to heat our McMansions and drive our Hummers versus the people of Europe (for example). That is not to say that we are the only ones with this mindset, but we sure have promoted it the best. Whether or not the cost of alternative fuels and energies is justifiable is, sadly, more of an opinion than fact. Environmentally conscious people might think, "Of course the cost of biofuel research is justafiable!" whereas consumerists might not agree. We can each help by personally looking at the amount of trash we throw out and the amount of energy we use and make steps to reduce our own impact. If many people take small steps, it sure adds up to one big one!!