Today, oil prices reached another record, just short of $90/barrel. Last year, when the Prudhoe Bay facility run by BP went off line due to a pipeline problem, oil prices were near their current peak of $78/barrel. That was around 14 months ago, and today we have another clear spike. Was there another hurricane? Nope. A severe geo-political event? Nope (well, unless you count Iraq … but let’s not go there, even if it might be the immediate cause … tensions with Turkey, and all).
The current oil price spike is simple supply and demand. In May of 2007, gas prices started the ball rolling, when gas prices here in Boston reached $3.00 a gallon (and a month months later when I saw 4 dollars per gallon gas prices in Chicago. Both of these events were ascribed to a shortage of supply due to the maintenance that was required by a new law that refineries, turning oil into gasoline, needed to observe.
The oil companies diverted all of their resources into making gasoline and did a fine job, such that by summer, the exceptionally high prices of gasoline had abated — supplies of gasoline had been satisfied. But, of course the oil companies were “borrowing from Peter to pay Paul” — normally by mid-summer they would be using their refineries to produce extra supplies of home heating oil, since, well, you know — it gets colder in winter. But they were still catching up with the whole gasoline thing.
But now, heating oil prices are considerably higher than they were a year ago. For example, home heating oil prices were $1.77/gallon on 10/23/06, and $2.38/gallon on 10/23/07, or $0.61/gallon more, more than 40% increase, year over year. Whoops! Oh, and while gasoline surely spiked in April of 2007, gas prices are also up more than 40% over a year ago.
This oil price thing is not a problem that seems to be fixing itself. Unless you believe, as I do, that the only thing that will cause global action is higher oil and gas prices.