Since the turn of the century the price of crude oil has risen sharply, the result of increasing demand for a commodity whose supply cannot increase quickly enough to meet demand. The dynamics of the petroleum market are becoming more clearly those of a market for something with a finite supply. This may seem obvious since petroleum in the form of crude oil is a finite product but for the 130 years before 2000, oil markets did not follow this pattern. The oil market was more elastic, reacting more quickly to rising and falling demand. This is because during that first 130 years of the oil age, the more easily and inexpensively accessible oil was being extracted, making the market function more like that of a commodity with nearly endless supply. As we have entered a period in which global oil production has plateaued, despite rising demand, prices have risen sharply and they are likely to continue to rise as growing demand outpaces supply.

Today’s market size looks at the amount spent globally on fossil fuel consumption subsidies. These are defined by the International Energy Agency (IEA) as “any government action directed primarily at the energy sector that lowers the price paid by energy consumers.” According to the IEA, changes in international fuel prices are chiefly responsible for differences in subsidy costs from year to year. The 30% year-over-year increase in the amount spent on fossil fuel consumption subsidies in 2011 closely tracked the sharp rise in international fuel prices.

Geographic reference: World
Year: 2011
Market size: $523 billion
Source: John Parnell, “IEA: Fossil Fuel Subsidies Increased 30% in 2011,” Climate Home, December 11, 2012, available online here.
Original source: International Energy Agency (IEA)
Posted on January 17, 2013