This Time, It's Different

Global Pressures Have Converged to Forge a New Oil Reality

By Steven Mufson
Washington Post Staff Writer
Sunday, July 27, 2008

The two events, half a world apart, went largely unheralded.

Early this month, Valero Energy in Texas got the unwelcome news that Mexico would be cutting supplies to one of the company's Gulf Coast refineries by up to 15 percent. Mexico's state-owned oil enterprise is one of Valero's main sources of crude, but oil output from Mexican fields, including the giant Cantarell field, is drying up. Mexican sales of crude oil to the United States have plunged to their lowest level in more than a dozen years.

The same week, India's Tata Motors announced it was expanding its plans to begin producing a new $2,500 "people's car" called the Nano in the fall. The company hopes that by making automobiles affordable for people in India and elsewhere, it could eventually sell 1 million of them a year.

Although neither development made headlines, together they were emblematic of the larger forces of supply and demand that have sent world oil prices bursting through one record level after another. And while the cost of crude has surged before, this oil shock is different. There is little prospect that drivers will ever again see gas prices retreat to the levels they enjoyed for much of the last generation.

Unlike the two short, sharp oil jolts of the 1970s, the latest run-up has been accelerating over several years as ample supplies of crude oil have proven elusive and the thirst for petroleum products has grown. The average price of a barrel of oil produced by the Organization of the Petroleum Exporting Countries doubled from 2001 to 2005, doubled again by March this year and jumped as much as 40 percent more after that.

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