The $110 barrel of oil

This week a barrel of crude oil (hereafter I’ll use oil instead of crude oil) has reached $110 where it was only $60 a year ago. Many claimed (and hoped) $100+ barrel is temporary and soon enough it will fall back to the good old days. Being a buzz-kill I have to disagree. Even though we have self-claimed oil producers, but most of them are oil extractors. We can only produce oil with high pressure or bacteria, but currently these methods will use more energy than it produces. Hence the phrase oil is a non-renewable energy.

By using simple human logic, if something gets rare it will become more valuable (or expensive). So why should oil price remain constant? It shouldn’t. The other question will be what drives the price to almost double in 07, instead of a steady rate of increase which never actually happen to America?

Texas Senator Ron Paul, an Austrian Economist, explains it is all because of the weak dollar. The Dollar has devalued 30% based on gold, causes goods and services 30% more expensive.

Then what caused the other 70%? The rest is more of a Keynesian demand-pull inflation. Our fellow average Joe and Jane have used more oil to fill their tanks and heat their houses. Wars have been using lots of oil. Also, China and India has consumed more oil to produce more products and fill their gas tank. Hence, about 2 years ago Time Magazine made a satire cartoon where you saved $2 on a pair of sneakers made in China and spent it back on the gas pump.

Next: A few suggestions to slow down the oil price increase