L.A. Starks L.A. Starks L.A. Starks



Reasons for High Oil Prices: Summary from “Oil Price Factors,” April 30, 2008 Talk Given At the Dallas Public Library and Hamon Oil and Gas Institute

by Laura Starks, veteran energy analyst

Overall, five main issues contribute to today’s high oil prices:

  1. *Monetary Policy A big chunk of oil’s price is due to the dollar’s weakness: estimates are as much as $50/bbl.


  2. *Oil Has No Substitutes A large portion of US energy use, 35-40%, is for transportation. Unlike electricity generation—another major use, along with heating—transportation relies on almost exclusively on petroleum-based fuels. The US is undiversified for all of its transportation fuel, an unbelievable strategic and economic risk . In other words, electricity from West Texas windmills doesn’t lower the price of oil until we have plug-in electric cars.


  3. *Limited Access to Oil Reserves and production are less available than many people realize because most reserves, 65%, are in the hands of the national oil companies (NOCs). The NOCs have different—slower, more political, more long-lived—development incentives than profit-maximizing international oil companies (IOCs). Similarly, in the US 20-40 billion barrels of oil reserves in Alaska, the Eastern Gulf of Mexico, and the East and West Coasts are off-limits. Some of this is being drilled by other countries such as Cuba.


  4. *Government Subsidies Abroad The US has much more demand competition than before, particularly from China and India. Many Asian and Middle Eastern countries subsidize petroleum fuels for their citizens, leading to even higher demand. It’s vital to note that in these countries, which include Indonesia, China, and Saudi Arabia, consumer demand will not go down simply because the world oil price has increased. Consumers in those countries don’t pay the higher prices.

  5. *Ethanol from Corn Increases Food Prices With food prices up as much as 83% and food riots in parts of the world, corn-based ethanol is not the perfect gasoline substitute many thought it would be.
*All of these factors support high-side oil prices.


Sources: In addition to my own experience, sources include numerous articles and data from Bloomberg.com, Oil and Gas Journal, Oil and Gas Investor, The Wall Street Journal, the Energy Information Administration, and The Dallas Morning News.

For further detail and illustrations, contact Starks at la@lastarksbooks.com or through her publicist, BreakThrough Promotions.

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