The U.S., home to less than five percent of the world’s population, currently uses about a quarter of the world’s oil. Canada, the Netherlands, South Korea and Japan are also among the top five oil consumers in the world. Oil consumption by China and India is growing too.

The increase in international demand and the loss of oil production capacity in Iraq, Venezuela and Nigeria due to geopolitical conflicts led to the erosion of OPEC’s excess oil production capacity.

All the worlds oil, including the four largest multinational oil companies ExxonMobil, Shell, BP and Total, goes into an international distribution system. The price is established by OPEC, a 13 member organization of oil producing nations.

OPEC was formed in 1960 with five founding members Iran, Saudi Arabia, Iraq, Venezuela and Kuwait. By the end of 1971 six other nations had joined the group

Indonesia, Libya, Untied Arab Emirates, Algeria, Qatar and Nigeria.

OPEC is responsible for over a third of the world’s oil production and Saudi Arabia and Iran are among the top five OPEC oil producers.

The non-OPEC producing countries include Russia, U.S., China, Mexico, Canada and Norway. Russia, the U.S. and China are among the top five non-OPEC oil producers. The U.S. is the third largest producer of oil trailing only Saudi Arabia and Russia.

When President Bush invaded Iraq in 2003 the average price of oil was $27 per barrel. Today, five years later, it is over $140 per barrel. The decreased Iraqi oil flow into the market, the 2003 strike in Venezuela and Nigeria’s ongoing civil unrest and border disputes all caused oil production to plummet.

OPEC’s excess oil production went from over six million barrels per day in 2002 to a million barrels per day in 2005. The increase in oil prices coincide with an increase in world oil consumption and a decrease in oil production in Iraq, Venezuela and Nigeria.

Oil prices are also effected by terrorists damaging oil facilities and transportation routes and creating instability.

Opening up the Arctic Wildlife Refuge (ANWR) and other coastal areas for drilling would not effect gasoline prices. Instead U.S. oil would be sold to Americans at the global prices just as we do now from oil produced in Alaska, Texas or the Gulf of Mexico. All the oil sold in the U.S. is bought off the world market. Increasing U.S. and non-OPEC oil production is also unlikely to lower America’s price of oil as the world oil markets would neutralize the potential oil price decrease by reducing oil exports by an equal amount.

The liquidity of the U.S. Federal Reserve is another oil price factor. The Federal Reserve is pouring out liquidity that is financing speculation in future oil contracts. Hedge funds and investment banks are restoring their impaired capital structures with profits made by speculating in highly leveraged oil future contracts.

To forestall a recession the U.S. Federal Reserve is continuing to offer low interest rates that are below the rate of inflation. This is contributing to the rise in commodity and food prices and weakening the value of the dollar.

When the dollar looses its role as a world currency, the U.S. government will not be able to borrow money from abroad and foreigners will cease to finance the massive U.S. trade deficit.

Some experts believe that international oil prices are now controlled by Wall Street not OPEC. They say the power has shifted from the oil producers to four speculators. By placing bets on the price of oil Anglo-American financial companies-turned-oil traders Goldman Sachs, Citigroup, J P Morgan Chase and Morgan Stanley are ensuring its continued increase.

Other economists believe that U.S. oil companies do not want to invest in more drilling and new refineries because no drilling and no new refineries brings in a profit of over $12 million a quarter. The law of supply and demand dictates that the oil is more valuable staying in the ground and spending less to gain more is a formula that has worked for 30 years.

Other gasoline costs include taxes, refining oil into gasoline, transportation and gasoline dealer profits. However these factors add up to less than half of the cost of U.S. gasoline.

The U.S. petroleum industry’s prices has been heavily regulated through production price controls throughout much of the twentieth century. Without price controls the U.S. would have paid the higher world price average.

The U.S. imposed price controls on domestically produced oil (by subsidizing the domestic petroleum industry) to lesson the impact of the 1973-74 Arab Oil Embargo. Had the U.S. not imposed price controls and subsidized domestically produced oil there would have been more exploration and production and automobiles and buildings would be more energy efficient. Alternative energy such as solar, wind and nuclear power would also be more prevalent and cost effective.

The long presence of cheap oil has hindered the search for alternative renewable energy sources.

A report by the Energy Watch Group (EWG) says that world oil production has reached its peak due to declining fossil fuel supplies. The price of oil is increasing because petroleum is scarce and its supply finite. Technology change has helped locate more oil but pulling it out of the ground has become more costly. Without imports the U.S. oil reserves would be exhausted in three years. For every barrel of oil discovered Americans now consume three.

The late American geologist, Dr. M. King Hubbert predicted oil shortages fifty years before it occurred. He said U.S. oil production would peak around 1970 and decline thereafter.

Statistics show Hubbert was correct. America’s crude oil proven reserves peaked at 39 billion barrels in the 70s as opposed to 20.97 billion barrels in 2006.

The U.S. consumes about 20.6 million barrels a day, about 60 percent from foreign oil. Based on current American oil consumption the 19 billion barrels of oil available in as-yet-untapped U.S. coastal areas would provide 2.5 years of oil.

In summary the major oil increase factors include an increase in worldwide oil consumption, the decline in petroleum reserves, oil price speculation, a weak dollar, concerns about peak oil and Middle East tension. Other contributing factors include the North Korean missile launches, the crisis between Israel and Lebanon, the tension between Iran and the U.S., the 2005 hurricanes and the U.S. refinery problems associated with the petroleum additive conversion from MTBE to ethanol.

Solutions to the rise in oil prices include independence from the international oil distribution system, less dependence on foreign oil, high-mileage cars, the use of more mass transit, energy efficient buildings and appliances and alternative renewable energy such as solar, wind and nuclear power.