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The Oil Supply Dependence Of The Automobile Industry - Research Paper Example

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The paper will answer following questions: Is the USA automobile industry heavily dependent on the world oil supply and/or domestic oil supply? If so, what will be the impact of such a dependence? What can be done to avert the negative effects of dependence?…
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The Oil Supply Dependence Of The Automobile Industry
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The Oil Supply Dependence Of The Automobile Industry

Download file to see previous pages... The paper tells that considering the rising oil prices worldwide, there were recent attempts to pave the way to alternative sources of energy so as to gradually reduce the demand for oil. In 2010, Li, Xiaogu, Clark, Christopher, et. al. conducted a survey of the peoples’ likelihood that they will prefer flexible-fuel or hybrid automobile given the choice when they purchase one. The result showed positive response to less dependence on oil for automobiles. Statistics show a declining dependence on foreign petroleum since 2005, according to the U.S. Energy Information Administration in mid-2011. Nonetheless, what has been the actual situation pertaining to a dependence on automotive oil? There was an increase in the use of domestically produced biodiesel, ethanol, and natural gas. However, by the mere fact that crude oil from domestic production realized increase in demand, dependence on oil as source of energy remains high. Imported oil declined. As can be seen from Figure A, consumption of oil also declined in 2010. But there will be a growing demand for liquid fuels including oil in the coming years as shown in Figure B. For automobiles, the trend in demand for Motor Gasoline also shows a projected increase in demand. See Figure C. Even as the production volume of crude oil will be increased in the USA, the prices of oil will also increase in the coming years. This can be clearly seen in Figure D. Apparently, the people are feeling the financial impact of the seemingly endless price increases of oil in the world market as well as in the local market. There is a domino effect on even the prices of basic goods whenever oil price increases are announced. Oil price increases eventually jack up the prices of goods and services since sources of energy like gasoline, motor oil, and liquefied petroleum gas are part of the cost of production and operating expenses like transportation or travelling expenses. It reduces the value of family income because each dollar will have a lower value in the sense that the same amount of money can only buy less and less as the prices of oil increase to push up the prices of prime commodities. Thus, people have been adjusting to these trends by finding ways and means to reduce dependence on oil. Many have resorted to alternative energy sources. 2. Analysis of the Problem The world has limited supply of oil while there has been increasing demand for oil. Tverberg, Gail E. wrote that oil supply of our world had stopped increasing since 2005 (Abstract). As a matter of fact, his report mentioned (3): “We show in this section that world oil supply constriction started about 2004 based on price trends, and that restriction affected primarily OECD countries”. It will take about 20 years to mitigate the decline in oil supply by producing alternative sources and by replacing vehicles capable of utilizing alternative sources (4). It was estimated that wind and solar energy sources can only contribute an insignificant capacity for the production of energy compared to the total energy supplied by oil-based power generators. “Growth of emerging economies” (1) certainly led to an oil shortage given such a fact about no more rise in the production of oil supply. To confirm this phenomenon as of a very recent date, January 3, 2012, Brad Plumer of the Washington Post reported the prediction of Goldman Sach’s Investment Bank pertaining to oil production in the world, which says that demand will hit the production capacity of oil by the year 2013. China and India have reached 2.5 billion population. Their demand for oil in order to achieve economic growth was reported to be rising as a result of these two countries’ fast developments. In contrast, oil supply production ...Download file to see next pagesRead More
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