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The effect of rising oil prices
The importance of oil in world economies, politics and everyday life cannot be overstated; being a vital source of energy it is not just a commodity, but a strategic interest. The price of crude oil is dependent on a huge variety of factors, but ultimately it is subject to supply and demand. Despite the fact that global oil prices have reached a seven-month low in September 2006, this has provided little respite to the general trend of ever rising prices. Since the apogee of the crisis between Israel and Lebanon, when oil prices allegedly reached $78 dollars (£41), prices are believed to have fallen by nearly a fifth. However, since July 2004, the price of a barrel of oil has jumped to roughly $60 a barrel, from under $40 two years ago. Overall, oil prices have risen since 1970, with fluctuations and some declines especially during the late eighties and early nineties.
Factors contributing to the rise in oil prices
The factors contributing to the rises in the short-term have been numerous, including the perception that petroleum resources had depleted as well as the problems created by the Middle East crisis. In the US, the effects of Hurricane Katrina not only caused devastation alongside much of the northern areas of the Gulf Coast in the US but also contributed towards rising prices.
The developing economies
Over a longer period, the emergence of developing economies has been one of the most important reasons for rising oil prices, with manufacturers and consumers in countries such as India and China becoming ever-more 'energy hungry'. Countries which have traditionally had a huge demand for oil, such as the US, have also not dropped their levels of demand. It is also believed that the fuel that is left are becoming increasingly difficult to extract, with a majority of the most accessible areas already having been used up in the 20th century. And with supply struggling to keep pace with demand, price rises may continue for the foreseeable future, with some predicting that the price will reach $100 for every barrel in the next five years. Perhaps one of the most important questions is, what are the most conspicuous effects of oil price rises?
The effect on manufacturing and distribution
Manufacturing industries will always be likely to be affected by oil prices, with UK industries being no different. A hike in the price of oil in August, for instance, may entail that the cost of raw materials rises higher, with manufacturers' costs also often being trimmed by the inability to fully reflect increased costs in the prices they charge customers. The way consumers feel oil price rises most conspicuously are through higher fuel prices. If petrol costs more to produce, consumers will have to pay more for it. Often, higher oil prices will necessitate that industry will feel compelled to raise costs – a situation which could quickly lead to inflation rising and eventually weaken economies.
Crucially important is that if the world supply of oil starts to run short before alternatives sources are arranged, prices could inflate to unimaginable levels. Essentially, the only solution to negate the seemingly endless cycle of rising oil prices would be to wean the world off its dependency on oil, or face a situation in which the Western world would be ever-more dependent upon reducing supplies from the Middle East. There are various ways in which this goal could be achieved, including maintaining better efficiency standards, greater energy conservation measures, supporting of hybrid vehicles and a greater use of renewable energy sources.
However, the governments of the world will have to pursue a vigorous agenda to enact some of these soon-to-be much needed changes. Scientists believe that the world's energy resources are sufficient to comfortably meet demand until 2030, but in order to cater for energy hungry nations, politicians should act with due speed. It appears though that many nations, even those close to home are waking up to the necessity for economically viable energy provision. In recent days, for instance the Irish government has announced that by 2010, 15 per cent of the country's energy needs will come from renewable energy sources, some ten per cent more than was the case in 2004. Ireland's marine and natural resources minister Noel Dempsey said the programme would act as a "major step" towards reducing the nation's dependence upon what he referred to as "volatile" fossil fuel. He estimated the programme would result in four million fewer barrels of oil each year.
And as far as transport is concerned, hydrogen is being mooted as the means to run the cars of the near future, as it is the only non-fossil fuel so far which can be carried on board a vehicle. Earlier this year, Honda designers in Japan road tested its FCX hydrogen-fuelled car, which if further improved, could become the first truly affordable fuel-cell car.
16 Oct 2006