Cheaper than a latte…for now

Newsweek spoke to John Hess, CEO of Hess Corp., about the economics of petroleum:

Oil prices have quintupled in the past six years, from $20 to $100 a barrel. Why hasn’t that weakened demand?

The reason we’ve withstood the increase is that consumer income has grown faster than energy expenditures have. We spend about 6 percent of our income on energy, down from 8 percent 20 years ago. Energy just isn’t the largest or most important item in our personal spending. Even after the recent price increases, gasoline is still two times less than the cost of Evian water, and 10 times less than a Starbucks latte.

As long as that stays true, Americans will stick with oil. The price — although historically high — is still justifiable. As Hess goes on to say, the problem is that these prices are not sustainable considering the increasing distance between supply and demand:

To date, a total of 1 trillion barrels of oil have been produced, and it’s conventionally understood that we have 2 trillion barrels left in the ground. That leads a lot of people to assume things are going to be fine. Unfortunately, the frontiers are getting more difficult to access, and some oil-producing nations are giving priority to their political agendas. The IEA [International Energy Agency] predicts global demand to average 98.5 million barrels a day in 2015; it’s hard to see how we can meet that level of production.

To fortify Hess’ point, even as worldwide demand booms, ExxonMobil expects its production levels to flatline through 2012.