The Addiction to Oil

The+Addiction+to+Oil

Paxton Scott, Reporter


Supply and demand is the largest factor in the calculation of oil price; currently the supply is high and the demand is low.  The price of oil has dropped 60 percent since June and has fallen to below 50 dollars a barrel for the first time since April 2009.

The high supply of oil – and thus the low price – can be traced back to the U.S., now the largest producer of crude oil in the world.  Although the U.S. does not export oil, it imports much less than it has done historically, thereby creating a large spare supply on a global scale.

Saudi Arabia is third largest oil producer in the world. They, along with the U.S. and Russia, are able to dictate the pricing of oil through the amount of crude oil mined.

“Saudi Arabia wants to drive the price of oil down below the price at which it costs to manufacture in North Dakota, so that they [American oil companies] will stop the crude oil mining in North Dakota” said David Dillman, the business and marketing teacher at DHS.

If Saudi Arabia makes it unprofitable to mine oil in North Dakota, they would decrease the supply and eventually drive oil prices back up.

The second part of the of low oil prices is the the low demand.  Experts believe  that the relative weak economic cash flow and increased awareness of fuel efficiency has led to a low demand.  The demand of oil, however, is expected to increase as developing countries such as China and India continue to develop infrastructure.

Imported_Crude_Oil_as_a_Percent_of_US_Consumption_1950-2003

In the eyes of many, the decrease in oil prices has been a positive only because it costs less to fill up a tank of gas.

However in the eyes of oil companies and their investors, the decreases in oil prices has meant up to a fifty percent drop in stock prices.

Russia is also feeling drop in oil prices – acutely.  The Russian economy is almost completely reliant on the export of oil, and this drop in oil prices has severely hurt their economy.

Although the U.S. hasn’t thought of Russia as an ally since World War II, it would not be in American interest for the country to collapse.  Russia is a nuclear armed state, and if the ruling government fell apart there is no telling whose hands the nuclear weapons would fall into.