Oil Prices

Get set for oil prices to rise dramatically. Why? Many of the reasons are tied to the BP disaster in the Gulf of Mexico. And no, it’s not because losing all that oil is going to result in a shortage.

It’s been 2 months, and neither BP nor the US government have figured out how to cap the flow of oil, or how to get rid of the oil that is out there and heading for shore. When the oil has stopped and cleanup begins in earnest, BP will be in the unenviable position of either paying for the cleanup to pacify the U.S. OR attempting to avoid paying for it by claiming that the oil rig operator was responsible, not BP, in order to pacify BP stockholders. If BP’s legal argument that it is not legally liable doesn’t hold, they could even declare bankruptcy.

By the way you can rest assured that other large oil companies are already restructuring their corporate structures to avoid future legal liability.

As we use up the world’s oil reserves, most new oil finds are in environmentally sensitive and harder-to-reach locations. That means more expensive to discover and extract. In light of this BP disaster, governments will undoubtedly add more restrictions and higher royalty rates on offshore drilling. They may add additional gasoline taxes to set up a reserve fund for this or future environmental cleanups. Or, they may ban offshore drilling totally thereby further reducing the supply.

Any way you look at it, you and I will end up paying higher oil prices.

So this is a perfect opportunity for us to reconsider our dependence on oil and seek out alternative energy sources.

Wind won’t do it. Solar won’t do it so that leaves nuclear energy. But if we can’t trust private enterprise (a la BP) and if we can’t trust government agency oversight to protect us from private enterprise do we want these guys building nuclear reactors around our country? I know I’m more frightened of a nuclear disaster than I am of an oil spill.

So get ready for more hybrid and electric cars as oil prices continue to climb. And as oil prices continue to climb, it makes extracting oil from more remote areas all the more profitable.

Round and round we go where it stops nobody knows.