[By Zhou Tao/Shanghai Daily]
It's not even summer driving season yet and gas prices are already climbing.
Prices at the pump have increased 52 cents this year, and now stand at an average of US$3.81 a gallon, surpassing US$4 a gallon in several states and pushing uncomfortably close to the all-time high of US$4.11 set in July 2008.
Pundits are predicting gas could hit US$5 a gallon before the end of the year. Frustration is rising along with the cost of oil as Americans look for someone to blame.
Fingers are pointing in all directions: from Iran to China, Washington to Wall Street. In a recent national survey by the Pew Research Center and The Washington Post, when asked who is most responsible for rising gasoline prices, 18 percent of Americans pointed to President Obama and his administration, 14 percent fingered oil companies, 11 percent chalked it up to tensions with Iran or the threat of war or upheaval in the Middle East, and 4 percent pegged it on speculators or excessive Wall Street trading.
(Editor's note: Motorists across China, meanwhile, are facing record high fuel prices on Tuesday after the government raised rates by a larger than expected 6-7 percent to help refiners reduce losses.)
There is no single cause for oil to rise, say Wharton professors and energy experts. Overall, fluctuations in oil prices boil down to supply and demand.
The world is "pushing up against what's available in terms of producible oil," says Robert Ready, a finance professor at the University of Rochester's Simon School of Business who studies oil supply shocks.
As oil becomes more expensive to tap and the world demands more of it, there is increasing strain on the available supply, Ready notes. That means a single unexpected event - whether unrest in the Middle East, a pipeline explosion or a hurricane in the Gulf - can disrupt supply and send prices higher. "There just isn't slack out there," he says.
About a year ago, upheaval in Libya triggered a run-up in oil prices. This year, all eyes are on Iran, which is under pressure from the United States, Israel and Europe to suspend its nuclear research program. In February, a defiant Iran threatened to block the Strait of Hormuz, a narrow passage to the Persian Gulf that yields access to 20 percent of the world's oil.
"Everybody is concerned that the Middle East could blow up in an unanticipated way," notes Howard Pack, a business and public policy professor at Wharton and co-author of "The Arab Economies in a Changing World."
The Middle East produces about 30 percent of the world's oil, so instability in the region can impact supply and drive up prices worldwide. Nevertheless, Iran is not the "dominant explanation" for rising oil prices, according to Pack. "More fundamentally, we still have this very rapid growth in China ... and India continues to grow," he points out.
Summer vs winter
Moreover, the price at the pump does not always correspond directly to a barrel of oil. Some price increases for gasoline are seasonal, says Avery Ash, manager of regulatory affairs for AAA, the Heathrow, Florida state, nonprofit that provides travel and roadside assistance.
In the US, for example, gas prices increase in the summer because gasoline is blended differently to reduce air pollution. The Environmental Protection Agency requires all gasoline sold after June 1 to be a "summer grade" gasoline, a blend that contains more additives and less butane than winter-grade gasoline. Because of its different ingredients, winter gasoline blends are about 6 cents a gallon cheaper to produce than summer blends, Ash says.
Getting more oil online won't happen quickly. New supplies have been discovered in the tar sands in Canada, shale oil in the US and pre-salt deposits in Brazil, but extracting it could take time. "We have all sorts of new supplies we've discovered, but they're years away from being in the market," says Wharton management professor Witold Henisz.