Opinion: Americans are in for a crude awakening

Posted: Thursday, May 29, 2008

Whither oil? That's the head-scratching question nagging everyone from beleaguered U.S. airlines and automakers to panicky motorists bracing for $4-a-gallon gasoline

Will record crude oil prices, which briefly topped $135 a barrel last week, continue soaring wildly into the stratosphere? Or will they finally come crashing back to earth, restoring sanity to energy markets?

One thing is clear: Today's almost unbelievably high prices are shaking virtually everyone's world to a degree that we haven't seen since oil prices shot from $3 to $35 a barrel from the early 1970s to early '80s.

Recently American Airlines announced plans to lay off thousands of employees, retire as many as 85 airplanes and charge customers $15 each way for the first checked bag. Those moves were engendered by ultra-pricey oil, the raw product for jet fuel.

As American CEO Gerard Arpey lamented: "This industry cannot continue under its current structure. It's not built for $125 or $130 oil."

On Thursday, Ford Motor Co. announced deep production cutbacks, citing plummeting demand for large trucks and SUVs. Demand is tanking because the average U.S. price for a gallon of regular gas is a Hummer-humbling $3.83. Prices exceed $4 in many locales and are nearing $5 in Alaska.

So what's causing these unbearably high oil and gas prices? Bear with me while I unpack a cornucopia of often-cited reasons:

• Heavy world oil demand (86 million to 87 million barrels per day).

• The weak U.S. dollar (which has encouraged speculative oil futures trading as a hedge against inflation).

• Wall Street investment banks predicting that prices could escalate to $140 to $200 a barrel.

• Disappointing production levels in oil-rich countries such as Russia, Mexico, Nigeria, Venezuela and Iraq.

• Reduced access to bigger overseas oilfields for private-sector oil giants such as ExxonMobil, Chevron and Conoco Phillips. (National oil companies such as those in Saudi Arabia and Venezuela now are controlling most of the world's supply.)

• Bans on U.S. oil exploration in many offshore areas and the Arctic National Wildlife Refuge in Alaska.

• Soaring costs for drilling in an era when most of the giant, low-cost fields already have been heavily tapped.

• Rising demand for diesel fuel in rapidly developing countries such as China.

Americans need to continue buying smaller, fuel-efficient cars and trucks, as we have done with increasing rapidity since oil topped $100 a barrel in February.

We must expedite the development of new engine technologies: gas-electric hybrids; plug-in, rechargeable hybrids; totally electric cars; and hydrogen fuel cell vehicles.

We must develop sustainable communities that reduce driving needs and encourage use of mass transit. We must seek new oil and natural gas supplies in some offshore areas where drilling is now banned, as well as in a limited portion of the Arctic refuge.

Or we could ignore all these remedies and look forward to paying $10 a gallon for gasoline.

• Jack Z. Smith is an editorial writer for the Fort Worth Star-Telegram.



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