You may have caught some of the coverage from the recent US Congressional hearings into gas prices. According to the media, oil company CEO's travelled to Washington to be "grilled" and "grilled" again by Congress. I get that people fed up with high gas prices are likely looking for a good public flogging, but there is way more to the story. So let me share a few of the interesting tidbits that didn't find their way to the very busy Congressional "grill".
I don't know him, but Peter J. Robertson, Vice Chairman of Chevron Corporation's submission to the House Select Committee on Energy Dependence and Global Warming was quite good. As someone who has spent hours prepping for similar hearings, I know how much research and work goes into these types of documents. You bring copies, the committee staff say thanks and then pile them on a big table at the back of the room.
So, let me grab a copy off the table and share a few highlights with you. Robertson raised a number of reasons why crude oil has hovered at record levels over the last few months. First up was global demand.
We have reached a point where worldwide demand is straining the global energy system. While demand in OECD countries essentially has been flat over the past few years, demand in non-OECD countries—what we typically think of as developing nations—is experiencing robust growth. In fact, growth in non-OECD regions has accounted for over 80 percent of the rise in oil demand since 2000. China’s new “Industrial Revolution” has lifted all boats across non-OECD economies, especially Asia. The expansion has been driven by exports and infrastructure investment, and has consumed commodities at an unprecedented rate.
In addition to the usual fundamentals like demand, the weak US dollar has also caused a market rush to commodities, like crude oil and gold.
The higher oil price is in part a market adjustment that reflects the weakening purchasing power of oil exporting countries that sell their oil in U.S. dollars but buy goods with stronger currencies such as the euro. Additionally, the weak dollar—and concern by stock investors over the subprime issue and its impact on the stock market—has contributed to a flight to commodities by investors seeking better returns. Oil has gone up along with many other commodities such as gold, corn, copper and even coal.
I've posted on the fact that the strong Canadian dollar has helped keep prices lower north of the border. But the flight to commodities has driven up the price of more than just oil.
There's more to his statement and the many other facts, figures and opinions the oil company representatives brought to Washington and piled on the table. I'll leave you with this final statement.
To understand today’s energy reality, I would emphasize that the energy system is global, vast and complex. For each minute we spend here today, the world will consume the equivalent of 7 million gallons of oil-equivalent.
Perhaps some of it is being consumed by all those "grills" in Washington.
Photo Credit: barron