OIL ON THE RISE

Record high oil prices appropriately have many people, including the president, concerned. Given increasing demand and constrained supply, those concerns aren’t going to be significantly eased any time soon. Longer-term fixes, if there are to be any, will have to include changes in consumer behavior such as the current propensity for SUVs and trucks and cheap goods made of plastic.

There are several reasons that oil topped $71 a barrel this week. Prime among them are global politics. Concerns over increasing tensions between the United States and Iran, the world’s fourth largest oil producer, pushed prices upward. In response to Iran’s claim that it has enriched uranium, the United States has not ruled out military action to stop the country from producing nuclear weapons. There is growing fear that Iran may withhold some of its oil if the United States or other countries take steps to punish the country’s extremist ruling regime.

In Nigeria, the world’s 12th-largest oil producer, more than half a million barrels of crude a day are being blocked due to militant violence, and rebels have said they will target more supplies.

Oil output from Iraq remains well below where it was before the U.S. invasion in 2003.

Weather also plays a role. Oil production in the Gulf of Mexico has yet to return to pre-Hurricane Katrina levels because not all the damaged infrastructure has been repaired. Gasoline prices typically rise at this time of year as refineries switch from producing heating oil to motor fuel.

Due to all these supply problems, the amount of oil available in the market is limited. In the 1980s and ’90s, Saudi Arabia was able to fill supply gaps because it was not producing at full capacity. That is no longer the case so there is little spare capacity to fulfill growing demand.

Increased global demand for oil is a second major factor. Demand in the United States has steadily increased, although the Department of Energy announced Wednesday average daily gasoline demand since the start of the year has been rising by 0.9 percent, compared with an increase of 1.4 percent during the same period in 2005. After this news, oil prices dropped slightly to just below $71 a barrel on the New York Mercantile Exchange.

Demand in China is growing even faster. Growth in Chinese manufacturing has meant more oil consumption, especially as the national government has become increasingly concerned about the country’s poor air quality, encouraging a switch from highly polluting coal to oil. At the same time, incomes are rising in China, the world’s most populous country, enabling millions of Chinese to purchase cars. The same thing is happening in other countries that are becoming more prosperous.

Given these global realities and Congress’ failure to support even modest steps to reduce U.S. oil consumption, consumers will have to act. As seen shortly after Hurricane Katrina, high prices caused people to buy less gasoline. As expected, gas prices then fell.

Trading in gas-guzzling sport utility vehicles for smaller, fuel-efficient cars and living in smaller, more energy-efficient homes won’t solve the oil supply problem, but it would help.