Oil set to shock US economy

“An oil crisis is coming, and sooner than most people think. We need to act now. Unfortunately, we are behaving in ways that suggest we do not know there is a serious problem.” – John Hess, chairman of petroleum giant Hess Corp

Hess made this statement in a speech given to a gathering of oil executives and analysts in Houston last week. He called for immediate and drastic conservation standards to prevent catastrophic economic shock caused by a convergence of demand/supply strains:

With oil production in the United States, Mexico and the North Sea set to decline, the fate of world crude oil supply will be increasingly in the hands of OPEC suppliers like Saudi Arabia, Iran and Venezuela.

World oil demand will rise to 118 million barrels per day in 2030 from 83 million bpd in 2004, and new OPEC production is expected to fill about 60 percent of the extra demand, according to EIA data.

Expenditures for crude oil and refined product imports are set to soar to $316.77 billion in 2030 from $264.68 billion in 2006, according to the Energy Information Association.

With oil prices near $100 a barrel and the U.S. economy teetering on the edge of recession, oil executives have joined the list of doomsayers, and even Bush’s fellow Republicans are wary about the country’s precarious energy future.

“We are being sucked dry by the amount of money we have to pay to other countries to buy their oil,” Sen. Pete Domenici, a New Mexico Republican, told Energy Secretary Sam Bodman at a recent hearing. “We are becoming a weaker nation by the day.”

We’re about to be a very weak nation if gas prices continue to rise past inflationary bounds. Right now, prices (adjusted for inflation) at the pump are similar to where they were at the peak of the 1970’s oil crisis.

Projected supply and demand metrics suggest that these prices are bound to rise, meaning our current precarious economic situation is set to be complicated even more. The writing is on the wall. But as John Hess noted, we seem to be ignorant to this oncoming problem, the realization of which could be the biggest shock of all.