How Oil Prices Affect the Price of Food

Oil is the product that each and every one of us use. It can be used for fuel, heating and even cooking. The most often known for unstable price is crude oil or gasoline. According to the The Economist, The main reason for price shifts of oil is oversupply. The oil production in Saudi rose 10.3 million barrels per day. This increase is the effect of a new method that I being applied to oil extraction. This method is called fracking, fracking is where they drill into tight-rock formations then gradually turning horizontal for several thousand feet more. This results to accommodations to multiple oil wells. This new approved method of oil harvesting has raised the productivity gains and reduced the cost of harvesting oil.

The consumption of the oil cause changes in the supply and demand. The United States produces 11 million barrels of oil every day. We are one of the biggest countries to have a big influence on the production and prices of the oil. The basic supply and demand theory explains that the if a product is produced more, the cheaper it should sell. If a country were to double the output of oil day, prices would fall and the Production is high, but the distribution of oil isn’t keeping up with the market. The United States builds an average of one oil refinery per 10 years. This is a net loss due to the fact construction has slowed down since 1970s. Since 1970s, the United States has 8 less oil refineries today. The reason why we are not oversupplied with cheap oil is because of the other countries’ higher net margin and the only operate at 62% of their capacity. Excess capacity is only there to meet future demand. With demand moving accordingly, oil prices will continue to be set mostly by the market — despite external players’ best efforts. (McFarlane)

Over the next forty years, global population is expected to reach nine billion people. This increase in population, combined with expected economic growth, will cause an increase in food demanded and inevitably drain the resources we use for food production. So far, agriculture has been able to respond positively to the rising demand for crop and livestock products. However, farmers are already faced with many new challenges associated with feeding an expanding global population. Farmers must now meet strict new emissions requirements and produce more food on fewer acres while minimizing their environmental footprint. The demand for food is expected to grow substantially in the next couple decades. Some of the factors affecting an increase in food demands are population growth, rising incomes of individuals, food supply factors, and biofuels.

It is estimated that 1.3 trillion barrels of oil reserve is left in the world’s major fields (Institution of Mechanical Engineers 2015). At present rates of consumption this will be enough oil to last approximately 40 years. By 2040, it is intended for production levels may be down to 15 million barrels per day which is approximately 20% of the amount of oil which is currently being consumed (Institution of Mechanical Engineers 2015). It is likely by the year 2040 that the world’s population will be twice as large (United States Census Bureau 2015). Additionally, it is likely that more of the world will be industrialized and therefore more dependent upon oil.

The United States consumes more than 25% of the world’s petroleum products which is a large percentage, considering only 3% of the world’s oil reserves are produced by the United States. Given the demand for petroleum products such as gasoline, understanding why Crude oil prices have skyrocketed in recent years, is not hard. According to the article “Ending America’s Oil Addiction,” the surge in crude oil prices can be reduced in large part to the simple concepts of supply and demand. (Cooper, 2008)

In addition to the US peak oil situation, the US Oil Drilling and Gas Extraction Industry faces heavy foreign market competition. In 2011, the US ranked 3rd in oil production, behind Saudi Arabia and Russia (Energy, 2012). Saudi Arabia’s OPEC governor expects Saudi output to rise steadily beyond 2030 with a 1.5 million barrel per day spare production capacity then (Energy, 2012). Russia holds the world’s largest

“The End of Food” by Paul Roberts was a very interesting book to read and quite frankly a bit frightening. Roberts touches on nutritional issues, governmental issues and environmental issues. It is apparent throughout the book that the food production system is not sustainable. The current food system relies on commercial farming and mass production of products. The mass production of food relies heavily on fertilizers, pesticides and insecticides. All of these practices to produce food at a mass quantity is concerning. Food safety is at risk when fertilizers, pesticides and insecticides are being heavily used as well. Since food is being produced at such a large rate, one would think that food would be cheaper to purchase, but one would be wrong. Roberts touches on un-reasonable food prices as well. Since biofuels are being used at such a large quantity rising energy prices may be another action that leads our food production to crash. There were so many topics talked about in “The End of Food”, that it is impressive Roberts was able to fit all of his views and information on four-hundred pages.

The featured article “The End of Oil,” the author, Alex Kuhlman argues that oil production is decreasing due to the costs of production are rising because cheap and easily accessible oil is hard to find despite increased consumption.(Kuhlman, 2007). Kuhlman (2007) provides evidence both from oil demand and supply aspects to illustrate the imbalance which causes the end of oil.

This report will consist of the causes and consequences of the changing price of WTI crude oil and recent trends in the global price of oil. It will also include the effects of the ever-changing price of oil on individuals, business firms, governments and the economy.

Within the last year, oil prices in the United States have dropped significantly. As oil drilling in the United States has reached its highest level in over 30 years, consumers are reaping the benefits. Among these gains are record-low prices at the pump, and cheaper oil to heat homes. However, oil prices did not just drop on their own; multiple factors contributed to the fall. Increased domestic production, declining global demand, and competition from other oil-producing nations had led to rapidly dropping oil prices across the United States.

The growing oil scarcity in the early 21st Century and its possible implications on the global economy, including economic growth, inflation, food security and poverty, is a subject that has been widely well known and discussed by a plethora of scientists and economists. Peak oil, a term coined by M. King Hubbert in 1965, is generally defined as “the time in our history when world oil production will reach its all-time peak and begin to incline forever”(Hirsch et al., 2005). By their finite nature, there is no argument over whether fossil fuels – oil, gas and coal – will go scarce, but rather when this will occur, whether alternative energy supplies will meet the ever-increasing demand, and how best to oversee such a transition. The failure to do so could result in a profound word-wide economic crisis leading to lower economic standards in developed and developing countries alike. Cuba, one of the only countries that has faced such a crisis yet, is an example of options and hope.

In the guest lecture about food systems, there were multiple costs mentioned regarding “more oil dependant large scale farms producing huge amounts of one thing, which over-saturate local markets, secondly the emissions let out by the transportation of these foods” (Koch, March 12, 2015)

In this text, I concern myself with the contents of two articles based on recent microeconomics issues. During the last two months, the price of gas in the U.S. has been on an upward trend. Taking into consideration recent happenings on the international scene, this trend could have been triggered by many different factors. The articles I make use of in this case discuss the rising oil and gas prices.

“We’ve got complacency,” he sums up. “So for those reasons, I believe the next food crisis – when it comes – will be a bigger shock than $150 oil.”

World oil demand is increasing as emerging economies need more energy to increase their living standards. Estimates, shown below, are that by 2030, China and India as emerging markets will import over 70% to 90% of their fossil fuel needs (1) . Coupled to a continued high and growing demand for oil, makes this a robust market for the next 30 years.