Triple whammy for oil consumers

Adapted from The Times article dated Tuesday September 20 2005

The world oil squeeze is a triple whammy of unique complexity that has been exacerbated by Hurricane Katrina. Katrina struck at an industry facing lack of investment, high prices and supply shortages.

Refining capacity shortages were already raising prices before Katrina ripped through America’s most vital refineries which were producing 1.5 million barrels daily of crude oil. Katrina took out the surplus and snatched away the world’s ‘comfort cushion’. But worse still, USA’s refineries were among the limited number that were able to refine heavy crude oils that are now prevalent in the market now.

As the US sucks in supplies to make up for the shortfall, it raises demand and consequently raises price all over the world.

In the past, oil crises were caused by political actions; when Opec countries reduced supplies or raised prices. The new phenomenon is a squeeze driven by demand for certain grades of diesel and petrol that are in short supply.

“It is moronic,” said one insider. “you may have sufficient usable gasoline in the mid-continent and you have a shortage on the west coast but you can’t use the mid-continent gasoline on the west coast because they have stronger restrictions on their specification.”

Rises in price were set in 2003-04 by the oil guzzling nations of China and India. Since other fully developed nations once consumed the same amount such as the USA, you can compare how much more efficient the west has become.

As demand for oil increased a new problem arose because it was not matched by investment in refining.

The world now needs to look for alternatives as a series of unprecedented problems arise. There has never been a time when the search for alternative energy resources have been such a focus.

China and America have recognised the need to match demand and supply. China recently introduced fuel economy standards and is now considering a new tax which would add 27 per cent to the purchase price of gas.

China has a five-year plan that puts greater emphasis on energy conservation than expanding supplies.