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Over the past years we have had a steady increase in gas prices. It has affected many companies and end users in our economy. It has even begun to affect food costs, energy costs, household items, and the overall cost of living. The expected average price of oil per barrel in the U.S. for 2008 will be $127.00. For the year 2009 it will average $133.00. What is the cause for the price of oil to be so high?
A possible effect of the steady increase of oil price is the credit crisis. The price of gas at the pump is digging deeper into many people’s budgets. Making it more challenging to pay for their mortgage and other monthly bills. Which has foreclosures at an all time high with no end in site. There is no foreseen end in sight. As described by, Euromoney Publications, many investors are seeking refuge as inflation rises and the dollar weakens.
A well know cause of the increase in oil barrel price is the supply and demand. U.S. production has been declining significantly ever quarter, thus making the supply lower due to lower demand. That being said, the price of oil has increased to cover the costs of drilling. In addition, the size of a typical new well has dropped dramatically. Meaning they have to continue to drill more wells, with more equipment, and more costs put into the price per barrel. Also as we dry up some current oil wells in return it is necessary to drill one new well every 12 months to replace the loss in production from every two new wells drilled in the prior 12 months. So the supply is apparently costing more to keep inventory levels up to where they should be.
To keep up with the future of oil use there needs to be new construction of infrastructures to import natural gas into the U.S. market. Such as the construction of the MacKenzie Delta Pipeline to bring natural gas from the Arctic Circle in Canada into the U.S. There will also be continued ultra-deep water drilling projects in the Gulf of Mexico,...