160 PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
However, although petroleum is a viable and extremely versatile
energy source, it is also the most political of energy sources not only
because the resources are for the most part located in countries that
do not require as much energy as the non-producing countries but
because of the frailty of the various governments. In any of the oilproducing countries, governments can change remarkable quickly
bringing different policies to bear on this natural resource. For this
resource, countries have been willing to go to war, which is almost
a catch-22 because it is a resource that is required for countries to
wage war.
The price of a barrel of oil is highly dependent on both its grade,
which is determined by factors such as its specific gravity or API
and its sulfur content (Chapter 2). Location of the oil also plays a
role in the ultimate price, and reference to the price of oil is usually either reference to the spot price of benchmark crude oil, such
as West Texas (light) crude oil traded on New York Mercantile
Exchange (NYMEX) for delivery in Cushing, Oklahoma; or the
price of Brent (North Sea) crude oil traded on the International
Petroleum Exchange (IPE) for delivery at Sullom Voe. On the
other hand, the United States Energy Information Administration
(EIA) uses the Imported Refiner Acquisition Cost (the weighted
average cost of all oil imported into the United States) as the
world oil price.
Crude oil prices have seen wide price swings over the past
decade — especially over the past five years — whether it is due to
apparent shortage or oversupply, (i.e. supply and demand factors)
(ITF, 2008). At the time of writing, prices have seen highs approaching $150 per barrel and are currently touching $40 per barrel, which
makes the average price (a number per barrel placed on the table by
some economists) seem meaningless. While the average price may
be meaningful to the statisticians in Washington DC, the real price
of crude oil is another matter because of the real price of petroleum
products, such as gasoline, may be an affordable $1.50 per gallon or
an expensive $4.00 per gallon and not a stagnant, reasonable average of $2.75 per gallon. Even when adjusted for inflation to current dollars, an average price per barrel bears little relationship to
reality, especially when the consumer cannot afford the products
or must go into financial hardship because of the need for crude oil
products.
To use an average price is to hide the truth of the barely or
unaffordable higher prices. The analogy often used is a scientist or
However, although petroleum is a viable and extremely versatile
energy source, it is also the most political of energy sources not only
because the resources are for the most part located in countries that
do not require as much energy as the non-producing countries but
because of the frailty of the various governments. In any of the oilproducing countries, governments can change remarkable quickly
bringing different policies to bear on this natural resource. For this
resource, countries have been willing to go to war, which is almost
a catch-22 because it is a resource that is required for countries to
wage war.
The price of a barrel of oil is highly dependent on both its grade,
which is determined by factors such as its specific gravity or API
and its sulfur content (Chapter 2). Location of the oil also plays a
role in the ultimate price, and reference to the price of oil is usually either reference to the spot price of benchmark crude oil, such
as West Texas (light) crude oil traded on New York Mercantile
Exchange (NYMEX) for delivery in Cushing, Oklahoma; or the
price of Brent (North Sea) crude oil traded on the International
Petroleum Exchange (IPE) for delivery at Sullom Voe. On the
other hand, the United States Energy Information Administration
(EIA) uses the Imported Refiner Acquisition Cost (the weighted
average cost of all oil imported into the United States) as the
world oil price.
Crude oil prices have seen wide price swings over the past
decade — especially over the past five years — whether it is due to
apparent shortage or oversupply, (i.e. supply and demand factors)
(ITF, 2008). At the time of writing, prices have seen highs approaching $150 per barrel and are currently touching $40 per barrel, which
makes the average price (a number per barrel placed on the table by
some economists) seem meaningless. While the average price may
be meaningful to the statisticians in Washington DC, the real price
of crude oil is another matter because of the real price of petroleum
products, such as gasoline, may be an affordable $1.50 per gallon or
an expensive $4.00 per gallon and not a stagnant, reasonable average of $2.75 per gallon. Even when adjusted for inflation to current dollars, an average price per barrel bears little relationship to
reality, especially when the consumer cannot afford the products
or must go into financial hardship because of the need for crude oil
products.
To use an average price is to hide the truth of the barely or
unaffordable higher prices. The analogy often used is a scientist or