Ten years ago, the price of a barrel of oil on U.S. markets was just under $20. Today that barrel of oil costs nearly $100, a roughly five-fold increase over the span of a decade. While American oil consumption has remained nearly flat when averaged over that decade, world oil consumption has increased faster than oil extraction has, forcing global oil prices higher as counties such as India and China industrialize.
Despite claims made by some political figures, the low oil prices of the past are not likely to ever return unless a global economic depression occurs; such an event would be a case of the cure being worse than the disease. As with most resources, the most accessible (in other words cheap) oil fields were those which were developed early on. The majority of the remaining oil fields are either in difficult-to-access regions, such as two miles below the bottom of the Atlantic Ocean, or consist of oil which is difficult to process into products such as gasoline and diesel fuel, as is the case of the Canadian tar sands.
The expensive engineering and technology required to make use of these oil supplies means that if oil prices were to fall beyond a certain point, oil companies would curtail extraction rather than selling oil below their cost of production.
You may ask yourself “What does this mean to the United States or to me personally?” The U.S., with about 4.5 percent of the world’s population, consumes approximately 25 percent of global oil production. Rising world oil prices have a disproportionally large effect on the American economy simply because we use such a large portion of global production.
Essentially every object you own or consume, from textbooks and cell phones to the food you eat, includes as a portion of its price the fuel it cost to deliver it to you. High oil prices therefore mean that not only will you pay more for fuel for your own vehicle; the entire U.S. economy will be faced with inflationary pressures. Since the United States consumes such a large percentage of global oil production, these inflationary pressures will have a costlier impact on the U.S. than on most other nations, in consequence acting as a drag on our economy.
If the United States wishes to remain competitive in a global economy it faces no option but to significantly reduce our dependency on oil supplies. Even increasing domestic oil production will only somewhat reduce the impact of expensive oil on the U.S. economy, as American oil companies can be expected to sell their products on the international market if they can accrue greater profits by selling to that market than within the United States.
While this can be accomplished by simply letting market forces alter the economy, it seems likely that less damage to the American economy, overall, will be done if governments, at all levels, take measures designed to reduce American dependence on oil in a timely manner. One potential step the nation could take would be to encourage shipment by ship or by rail whenever possible (both of which are much more efficient than tractor-trailers), while state or local governments could provide incentives for companies to support home-offices for some employees rather than having them commute to work each day.