This oil squeeze may be permanent

Whether it is rising cost of the commute to work or operating a second car for the family, Canadians are justifiably stressed out by the sky-high price of oil. We are all nervously wondering if current prices are a once-in-a-generation spike, or if $1.20-per-litre gas will seem like a bargain a year from now.

On the surface, there are plenty of reasons to believe that gas prices will come down in the short-term. The per-barrel cost of oil today has been inflated by financial speculators — the hedge-fund wizards who are ploughing billions into commodities as financial and manufacturing stocks test new lows. The political turmoil in oil exporting nations such as Nigeria is also contributing to higher prices at the pump. So too is the lack of refining capacity in the United States, and the fact that we often have price spikes when demand for gas peaks in the lead-up to the summer driving months.


While we all might reasonably expect a break at the pumps in coming months, the long-term prognosis for cheaper gas is not good.

There is a mounting body of evidence suggesting that global demand for oil is fast outstripping supply. For starters, global oil production has stagnated in recent years at approximately 87 million barrels per day. This is as much the result of the declining output by some of the world’s largest oil fields (e.g., onetime oil exporters such as Mexico are now importing gas) as it is a reflection of the difficulty of finding new oil reserves: In the last 15 years, despite oil companies spending billions on exploration, only one new oil field with the potential to produce half a million barrels a day has been found.

National Post