Going up?

As several of my posts have noted, oil is by no means an infinite resource. Although oil has some very positive characteristics, such as its utility for all sorts of transportation applications, there are definite downsides as well. These include:

  • Burning it produces air pollution. At best this is mostly NOx and CO2, the latter being a major component of anthropogenic global warming. At worst the pollutants include sulfur oxides, unburned hydrocarbons, and particulates, all of which can produce undesirable health effects on man, beast, and flora. To reduce those effects certain additives are required. These additives are more costly, thereby increasing the price of the product. Then, of course, there are also the costs of the health effects and global warming.
  • Oil is on (or past) the verge of becoming more difficult to supply. Coupled with growing world demand for it, this presents a dilemma. Let’s see, Economics 101 suggests that if demand for something increases and its supply shrinks then the price of it is sure to rise.
  • Most of the oil that has been produced so far is the “sweet” stuff, meaning that it is easily refined into gasoline, jet fuel, diesel and similar transportation-useful derivatives. We’re getting to the stage where the remaining supply is more difficult to refine into those sweet products. More difficult to refine means more costly to produce. That implies that the price of the product goes up.
  • Large portions of the remaining undeveloped oil reserves are in areas of dubious future econo-political stability: the Middle East, Russia, Venezuela, Nigeria for example. Such instability acts to cause prices of crude oil to fluctuate about a rising trend. There are two main outcomes of this situation: demand-induced price increases and supply disruptions.

So, as you complain about the cost of your Memorial Day trip in your SUV, think about this: it’s only going to get worse, even if the price is manipulated down around election time. Telecommuters have a much smaller problem in this respect.

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