Why Oil is so high and 10 things you can do about it

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Are the Oil Companies Really to Blame?

Most feel the pain at the pump every week, and blame the oil companies. While I hate corporate fat cats as much as the next person, oil companies margins are pretty small – meaning oil companies are making smaller profits than most other public companies out there. In fact, Exxon recently announced they want to shed their gas stations because it has become a losing business. In addition to smaller margins, as the price of oil goes higher, the oil companies compensate by drilling for more oil. On average, these costs have quadrupled since 2001. So, higher oil prices (and higher drilling costs) are actually not in the best interests for oil companies. Hence, their profits erode and they will eventually start to lose money over time with higher prices.

Why not drill for more oil? After more than a century of drilling and more effective drilling techniques, we have covered a great deal of possible places to drill, and there are fewer places left. You see… oil supply is finite and we have nowhere left to go that would provide us a comprehensive, long range supply.

Did we see this coming? Yes, a professor of geology, M. King Hubbert, predicted in 1956 that there will be a peak to the world’s oil supply in 1970. While he didn’t account for better technology, his theory, called Hubbert’s Peak or Peak Oil, became an industry omen that oil men often ridiculed. Hubbert was able to graphically represent this in a bell curve format: one for discovery and one for production.

It is believed we are just beyond the 1^st peak

Here’s the problem: With developing nations like China and India driving more cars, more oil is needed to run them. We are stuck with increasing global consumption of oil with more and more limited supply. Many believe we have passed “Peak Oil.” As much as we would like to, India and China are not to fully blame because their consumption only exacerbates the problem. We still would have run into a supply problem with or without their demand soon or later.

What happens next: Well, as supplies get tighter and tighter, the price of oil must escalate until demand stops. Even the experts don’t know whether that will be $150, $250 or more. But rest assured there is a point at which the world won’t pay a higher price for oil. For instance, we won’t pay $30 a gallon or $450 to fill up a tank. Hence, the price of oil will not always go up.

“I ride my bike to work. Oil won’t affect me.” Have clients, customers or vendors? They all need to get to you. So it will be either too expensive to get to you or your vendors will have to pass on their higher oil cost. Oil is a cost that every working person ultimately bears in some form or another. And if oil starts to climb too high and your business starts to lose customers, people will need to be let go as the company can’t afford payroll. Fewer customers = Less revenue = Lower profits or even losses = Cutbacks. What to do?

10 Steps You Can Take Right Now to Help Lower Your Danger in an Oil Crash:

10. If you can’t bike, drive a hybrid or high MPG car. You can use Edmunds, Consumer Reports or Yahoo! Cars to find those cars. I have also read that used high MPG cars are better for the environment, as we don’t need to use new resources to create them.

9. Batch all your activities into one day so you need to make only one car trip so you can save on gas.

8. Live closer to work or ask you boss if you can telecommute. This will not only save on gas costs, but on auto wear and tear. Tim Ferriss’ book, The 4 Hour Work Week, shows excellent ideas in approaching your boss about telecommuting.

7. Carpool. Yes it’s old fashioned, but again your cost goes down as you and your pals rotate trips to the office.

6. Reduce, Reuse and Recycle. Recycling your plastics and cans is a good start. Seeking used furniture on Craigslist , giving away free stuff on Freecycle or the local Goodwill is a better step. We rarely think about it but almost everything you buy contains oil, usually in the form of plastic, or oil is used in the process to make the item you want. The less we buy versus reusing, the fewer resources, like oil, we use to extract to make those new, shiny products we buy.

5. Skip the business trip and use teleconference software like Go to Meeting. Cars aren’t the only thing that gulps gas. Air travel consumes a great deal too!

4. Cut back and save as much as you can. If the oil crisis gets worse, people will start to lose their jobs. Saving now while you have a job is going to make a big difference for your future. If an oil crisis is ultimately diverted, your savings can become a good start for your retirement.

3. Come up with an emergency plan. While it may sound silly, having a financial emergency plan can be critical to knowing what to do. Start with your bank statements, as they show your expenses and what could be cut in an emergency. Decide on what you would do to adjust you life so you can weather the storm. While I don’t suggest that this oil crisis could turn into another Great Depression, you should have a sensible economic plan.

2. Educate others. People know that there is a pending oil crisis, but people don’t want to do anything. Don’t just let this happen! Get out there and help to educate others by hosting local community groups, sending out emails to friends and colleagues, and get involved with known civic organizations. We can all play a part in reducing our consumption of oil.

1. Vote for someone who will actively move us off our dependence on oil, rather than just prolong it. As much as we do individually, we must work as a nation and move toward alternative energies like solar, wind and geothermal.

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