The continual decline of the dollar is the biggest threat to the U.S. and to oil prices, and a culture of overspending is the heart of the problem within the financial sector of the country. That is according to Dr. Micheal Kurth, professor of economics at McNeese State University.
In regards to the price of oil, Kurth, who spoke at Friday’s luncheon of the League of Women Voters, pointed out that it has been generally stable over time. He indicated though that he was surprised the price did not go higher due to Hurricane Ike and the path that took it through the offshore oil fields and Houston.
“Ike hit the oil production capacity of the United States in the Gulf coast actually harder than Rita did.”
According to Kurth, as of Friday, 63 percent of the Gulf’s crude oil production was still shut in (a loss of 800,000 barrels a day), five refineries in Texas and Louisiana were still shut down, and an additional eight were running at reduced rates.
“So far, we’ve lost nearly 44 million barrels of product including 20 million barrels of gasoline and 14 million barrels of distillate fuel,” said Kurth.
But nothing supports the notion that the world is running out of oil.
Besides the damage done by the hurricane, price increases can also be attributed to worldwide demand and consumption. Energy consumption worldwide has increased nearly 23 percent in the last 10 years, according to Kurth, and the U.S. has seen a 6.9 increase in that same time period.
Asia and Oceania countries have accounted for 63 percent of the worldwide increase; China and India being the greatest among them. Their energy consumption is now 40 percent greater than the U.S. This growth in demand has increased competition for oil, resulting in the U.S. having to bid higher in the world marketplace.
“That is likely to continue in the long run,” said Kurth.
Due to the availability of oil shale and our ability to drill, Kurth supports expansion of domestic drilling. But he is cautious about current alternative fuels. They are a "future promise," and he warned that care should be taken in regards to subsidizing certain alternatives such as ethanol.
However, he would rather see the market, not the government, decide what the long term solutions will be.
Kurth forsees a downward pressure on the price of oil to occur soon if certain conditions are met such as restoration of Gulf oil production and suppression of demand due to an economic recession. Other factors that can assist in the downward pressure are an increase in domestic drilling, feasible alternative fuels and an upgrade in fuel efficiency over time.
