Cost of Oil - How and Why?

I have read dozens of articles on predictions, reasons, and effects of the huge cost of oil today, and none of them seem to explain WHY the prices have more than tripled in the last two years, other than “fear” that we will soon run out of oil due to the increasing growth and demand in China and India. Frankly I am at a loss as to all the reasons why and can only speculate that there is something more than “fear” of running out of fossil fuels, that has triggered these prices.

Think about this, Mobil/Exxon, Shell and many more of the large oil conglomerates are investing in “alternative” fuels, such as hydrogen and bio-fuels, like ethanol. Major automobile companies are also switching gears to create vehicles that run on these fuels, or electric power. Toyota with their decade long investment in hybrid cars, Honda, GM and Ford all rolling out hybrids. GM is also looking at all electric, which they already had pretty much done in the 70’s but found little INTEREST and was too cost prohibitive due to the technology of that time regarding battery power. Today they are working with a Watertown MA, company that has developed or is in the final stages of developing a lithium-ion battery that is cost effective, reliable, safe, and long lived. Germany and other European countries have rolled out hydrogen based public transportation developed by a consortium of Euro-oil companies (Shell being one), BMW, and government agencies. Shell has also setup Beta Sites for hydrogen fueled vehicles here in the U.S. based in California and Washington D.C.

What is my point in mentioning all this? Simply that until there is a serious demand for alternative fuels none of these programs will come to fruition. Point in case is the GM attempt in the 70’s to produce and market an all-electric car – no one wanted it. My feeling is that the high oil prices is an attempt by oil companies, auto manufacturers, and other fossil fuel dependent business to create a market more open to development and sales of these alternative energy sources.

Unfortunately petroleum will still be a necessity for years to come due to the fact that it is not just used in the production of fuel, but also used in products that we use every day, from plastics to cosmetics, to even pharmaceutical products. It is my feeling that once a better fuel market has been established we will see a marked drop in crude oil prices but this will take years to happen.

In the meantime the poor and middle class will suffer the most, as they will not have the finances to be able to keep up with the rising costs of products and services due to the increase in prices due to transportation and production costs. This has me concerned in that it will give an excuse for the government to increase its involvement into the lives of the citizen population. The paradox is that this would be the right thing to do, to assist as a temporary situation, but as we have seen from the past once a “safety net” or entitlement is in place it never leaves and once again the government becomes more of the Nanny state than previous.

I do not think that the crude oil price increase is due to some sort of calculated conspiracy to grow government, but I do think that it will afford some of our politicians the opportunity to take advantage of the situation, and that we should be cautious of how our elected officials will deal with the inevitable repercussions of the crude oil increases.