There are many reasons for high gasoline prices increase.
Some of them:
- surging demand in newly emerging industrial powers like China and India
- Japan's shift from nuclear to oil for power generation following the tsunami
- Unrest in oil producers Sudan and Yemen
- Libya still recovering from its civil war
- Uncertainty about Iran
- the expectation that the North Sea fields are beginning to wind down and
- finally, the inevitable workings of the law of supply and demand. World demand is expected to hit 90 million barrels a day sometime this year.
Some of the recent run-up in oil prices was due to political tensions in the Middle East, involving especially involving Iran. When traders get worried, the supply might be cut, they start bidding prices up. And when gas prices are raised, the situation gets a little out of hand.
A blockade in the channel of Hormuz that connects the Persian Gulf to the Arabian Sea, means a halt to 17 million barrels of oil passing through it. This tunnel connects countries like Saudi Arabia, Iran, UAE, Iraq and Oman. Therefore, about twenty percent of world's oil would stagnate, which would, in turn, send northward the already high oil prices. Iran's threat for blockage of this strait is high. Well, the European Union has placed a ban on Iranian oil imports and some sanctions on the central bank. In the US, on December 31st 2011, President Obama has signed a bill imposing new sanctions on Iran under the National Defence Authorization Act. These law implications apart from targeting the revenue from oil imports, also targets financial institutions from other countries that conduct transaction with Iran's central bank. Since March, such institutions would be barred from doing business in the US.
According to International Energy Agency, Iranian Oil, accounts for 9% of India's oil consumption and 6 per cent of China's. Together, these countries suck in almost 34 percent of Iran's oil exports. Of the 2.5 million barrels of oil exported by Iran about 500,000 barrels are exported to Europe, while the rest are imported by China, India, South Korea and Japan. Even if these countries move away from Iran's oil, as US hopes, the demand would easily outstrip the supply.
According to the International Energy Agency the pressures are increasing on the global oil markets after the production fell by 200,000 barrels causing a bumpy ride for the months ahead. The decline in world oil supply, a result of production disruption in South Sudan, Yemen, Syria, Canada and the North Sea, came even as Saudi Arabia raised up production to near a three-decade high. Although, Saudi Arabia's has increased its oil output to 315,000 barrels a day, this could not make up for a decline of about 500,000 barrels a day from other countries. Already, research shows that Saudi Arabia is exaggerating its oil reserve estimates and even OPEC for that matter doesn't have enough to shore up the shortfall.
Still, as of Tuesday U.S. gas prices were averaging $3.80 a gallon and world prices for oil neared $107 a barrel, and rising prices threaten both the economic recovery and political discomfort in countries like U.S.
Asia sure is expected to dominate the growth of oil demand in 2012, due to more tough regional economies and strong imports by China and India. Although the economies of China, India, Japan and South Korea, are slowing, they are still in a much better position than other countries in the Europe, Soviet Union and Americas, as the oil demand in these countries is expected to remain flat or even shrink in 2012 according to the IEA forecasts. Global oil demand in 2012 is expected to grow by 800,000 barrels to 89.9 million barrels a day, with Asian countries contributing 700,000 barrels to this expansion, the IEA said. Global oil demand in 2012 is expected to grow by 800,000 barrels to 89.9 million barrels a day, with Asian countries contributing 700,000 barrels to this expansion. Although recent economic data shows that Japan has been quiet a mixed bag, the power sector has conquered oil demand since closure of last year's nuclear power plant and crude-oil burning 135.5% at 165,000 barrels a day.
India's economy grew at its slowest pace in more than two years since October-December period as told by government insights. Although India's oil product demand has slowed since June 2011, new refining capacity is expected to gradually come up from March the beginning of a new financial year.
Global oil market in China 2012 India, Japan and South Korea will sure account for more than a fifth of the world's oil demand in 2012.
Much of the rest of the world is using more for industrialization, transportation, and agriculture. And this increasing demand worldwide is what's going to push up prices at your local pump for years to come.
Well any alternative??
1. Saudi Arabia can pump in about one million barrels per day through the pipeline running along the Jeddah port on the Red sea.
2. Iraq and the UAE are planning to have new pipelines to counteract the blockade, though that may take time. Even if all the pipelines are realized, we are still talking of two million barrels of oil only. Where to go for the seventeen? Of course, the IEA countries could release some of the oil from the emergency stockpiles. Yet, these may take time, and will have to be replaced-as well.
Interestingly the prices of natural gases soared in the 1990's and then slowly died down. Twenty years later, the price of gasoline is going up while the price of natural gas is going down.
The tight global market for oil and releases from the Strategic Petroleum Reserve, calls for switching to other options in the near future.