Oil pricing itself out

As cost reaches milestone, reducing demand through alternative fuels is viable answer

Thursday, Jan. 3, 2008 | midnight

Billions of people loudly celebrated the arrival of 2008 Monday night and Tuesday morning, but the first big news of the new year had a quieting effect. Because static world production starkly contrasts with rapidly increasing world demand, the price of crude oil surpassed $100 a barrel Wednesday for the first time.

Over the past several years, surges in oil prices have come with a comforting reminder -- after adjusting the increase for inflation, national experts always explained, things are still not as bad as in 1980, when oil at $38 a barrel precipitated a recession and sent gas prices to their highest-ever level.

Well, oil at or near $100 a barrel today is equivalent to the 1980 price. There are no words that can lessen the concern about the impacts of this development or about the speed at which it materialized. Just five years ago, crude oil was $25 a barrel.

When oil prices reached $97 a barrel in November, Time magazine quoted Fatih Birol, chief economist of the International Energy Agency, which represents the United States and 25 other nations that are members of the Organization for Economic Cooperation and Development.

“I am sorry to say this, but we are headed toward really bad days,” he said.

Birol's prediction was based on the fact that global oil production is nearing capacity now at 85 million gallons a day, when projections show that the world will be demanding 116 million barrels a day by 2030. One of the reasons for Wednesday's jump in price was an announcement by the Organization of Petroleum Exporting Countries that it might not be able to meet demand as early as 2024.

Attempting to lower the cost of oil by bringing more supply to the market would be a gamble. The cost of exploration and access would likely offset any appreciable new supply. As we see it, the United States and other nations should continue, vigorously, to work on demand. It is demand that is largely driving oil prices, and that demand can be lessened through conservation and increased production of alternative energy.