Why are Gasoline prices so high?

Oil has been the main source of fuel for machinery in the 20th century. We can argue that it is one of the pillars of contemporary human civilization, powering everything from cars, factories, airplanes, to war tanks, house heating and barbeques. In short, we take it for granted.

Years ago, I recall reading a Scientific American article, The End of Cheap Oil, in March 1998 by Colin Campbell and Jean Laherrere. In that article, the authors predicted a sharp rise in prices due to many factors, the most important of which is producing countries overestimating their reserves to get long term credit from banks. They predict that the shortage is not 50 years away, but rather as near as 10 years away (approx. 2010 or so).

That shortage will result in wars as the US occupies countries in the Middle East to secure cheap oil.

History of Oil Prices

Several sites on the internet list historical prices of oil. For example you can see the history of Oil prices from 1947 to 2004, in particular, this graph.

You can also get a more recent year by year price of oil history

Sheikh Zaki Yamani, Saudi oil minister from 1962 to 1986, and now head of the London based Centre for Global Energy Studies (CGES) has warned about oil price rising for a long time.

For example, in March 2005 in Business Week, he says that the average price must rise but eventually fall again.

In 2002, he was talking about something he warned about for a long time, as I have seen him say on satellite TV in more than one occasion, that oil could hit 100$ per barrel.

In 2000, he was quoted in Al Ahram newspaper saying that the "end of age of oil will not be because of the lack of oil".

The CBC has a background section on oil prices, with lots of useful articles. 

Gasoline Pump Prices in Ontario

Meanwhile, here in Canada, I remember filling up for 58 cents per litre, but most of the last 5 years has averaged 60-70 cents. Only in late August 2005 has the price shot up, with a litre costing up to 139 cents. Current prices in Kitchener/Waterloo Gas prices from GasTips are 105 cents, with a rumor that it is 187 cents, perhaps due to Hurrican Rita speculation.

A Boon for Albertans

Albertans are probably the only Canadians rejoicing for the soaring oil prices. Every Albertan will get a tax free cheque for $400 since the province is making more money from the price hike.

Why is it so expensive now? 

Several factors contribute to rising oil prices, and they can be summarized as follows:

Government Taxes

A big portion of what we pay at the pump is government taxes. As oil prices rise, these taxes should be adjusted to lessen the impact on the consumer.

Energy Companies' Greed 

For a long time, the energy companies in North America have been accused of price gouging. For example, natural gas prices would rise in winter, when consumption is highest, and fall in summer. Similarly, gasoline would cost more before a summer long weekend when people drive more to go to places.

Politics 

Looking at the graphs above, you will clearly see that wars affect oil prices. The most recent example is the invasion of Iraq by the Bush adminsitration. One of the reasons cited is securing oil supply. It had exactly the opposite effect: oil prices are rising.

Speculation

Speculators are a major contributor to this whole mess. If the ill King of Saudi Arabia died, prices go up, although the heir to the throne was practically running the show for more than 10 year. If a Hurricane Katrina hits New Orleans, the prices go up. If Hurricane Rita approaches, the prices go up. Just about anything will raise the price because of speculation.

Frank Herbert Dune as analogy for Oil and the Middle East

It is only appropriate to draw parallels between the reality of oil and the Middle East today, and what the famed Science Fiction writer Frank Herbert wrote in the 1960s in his Dune novels.

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