Why Gas Won't Get Cheaper

You don't have to be a commodities trader to worry about West Texas crude. Most of us know the price of gasoline to the penny, and it's starting to really pinch. President Bush made the rising price of oil a focus of his prime-time news conference last week. But as Bush has acknowledged, lowering the price of oil isn't that easy. "You can't wave a magic wand," he said. Oil, unlike other products and services that are manufactured and sold, obeys the laws of geology, not just supply and demand. "You don't make more oil," says Sam Shelton, director of the Strategic Energy Initiative at Georgia Tech in Atlanta. The world has to work with what it has. TIME's Jyoti Thottam explains:

•Is the world running out of oil?

No, but that doesn't mean we're off the hook. "There is enough oil, but most of the easy oil, the cheap oil has been got out," says David Wyss, chief economist at Standard & Poor's. Energy experts obsess over whether we've reached "Hubbert's peak," the point at which oil reserves are 50% depleted. That's because the remaining 50% gets increasingly harder and more expensive to extract. At some point in the next decade or so--estimates range from 15 to 25 years--the world's oil production will peak. Yet demand for oil will continue to rise, increasing 50% over the next 50 years.

•So, cheap oil is now just part of history?

Correct. "Oil prices have moved to a higher level, and they're going to stay there," says Wyss. Expect crude to remain around $50 a barrel, while gasoline could reach $5 a gallon within the next few years. There will always be blips in both directions. A hard landing for the Chinese real estate market, for example, could stall growth and cause a sudden drop in oil prices. "People would be terrified [by such an economic slowdown]," says Jim Rogers, a prominent commodities investor. "But it wouldn't last." Politics can also create short-term volatility: trouble in Saudi Arabia or political instability in Venezuela, Russia or Iran would cause price fluctuations. So could speculators. Last week's $5-a-barrel price dip came thanks to profit taking in the market. "Hedge funds have been bailing out of their positions," says Bill Greehey, CEO of oil refiner Valero Energy. "You've got a lot of hot money."

•Will other sources of energy, like wind power or nuclear power, save the day?

Only if they replace oil consumption. Building nuclear plants or wind farms to produce electricity, for example, won't add a barrel of oil to the world's supply because we generally don't use oil for electricity. Most electric-power plants run on coal or natural gas, another fossil fuel that will eventually peak, although later than oil will. Building more terminals to receive liquefied natural gas, as Bush has suggested, simply makes it easier for us to import more natural gas.

•An adviser to Saudi Arabia's Crown Prince Abdullah blamed high gas prices partly on the lack of U.S. refinery capacity. Are the Saudis correct?