Peak Oil and the '08 Election

The headlines this month have been taken by the most insidious of America's vices: black gold. Oil futures are now projected to exceed $100 a barrel until 2016, and continue to sit comfortably near the $115-120 a barrel mark. Many different causes have been blamed for rising prices at the pump, ranging from massive speculation to supply instability in some oil-producing nations. However, one factor must surely be worrisome to most every American: oil companies haven't been getting enough of the stuff out of the ground.

Exxon Mobil's $11 billion quarterly profit disappointed Wall Street and investors alike, their shares falling 4 percent on May 1st. The largest oil company in the US has seen stagnant margins in most quarters since 2005 without being able to increase production. In fact, their overall production fell 10 percent. Demand in the US has also contracted 2 percent since the beginning of the credit crunch last summer, so Exxon's profits have been reaped in large part because of increasing price pressure on consumers, many of whom have looking to Congress for some relief. They may be looking for a while, as representatives have been less than forthcoming on bipartisan measures since they passed the economic stimulus package into law in February. 

The two Democratic candidates running for President have sharply contrasted on how to address record oil inflation. Both Democratic Senator Hillary Clinton and Republican Senator John McCain have endorsed the idea of temporarily removing the federal gas tax over the summer months. Their reasoning is that consumers will feel the pinch of driving costs most over the summer, which means some offset in price would be more appreciated. However, there is no guarantee that the tax break will reach consumer directly, as many other secondary industries besides the oil companies price their profits into gasoline. Senator Barack Obama has also criticized the two candidates, stating that they were "reading from the same political playbook." However, he hasn't offered forth an alternative.

It is therefore difficult to project how difficult it will be for hard-hit US consumers in the near term, much less come November. Ethanol conversion and use is another issue that will continue to influence price inflation, as greater demand for alternative fuels increases. Many economists already believe that the globe has reached peak oil, or the zenith of possible oil production. This means that energy will only become scarcer and more expensive, and the 18.5 cent federal gas tax will only be the tip of the iceberg when it comes to government intervention. Oil prices aren't going down by much even if such a tax break is implemented, primarily because demand from developing countries like China and India continues to grow. Indeed, their combined oil consumption outpaced that of the US for the first time in 2007. Some type of initiative between oil-producing nations will eventually have to be made to move towards more sustainable levels of consumption, but growing divisive political sentiments make it unlikely for anything major to happen until someone new is in the Oval Office.