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  • Oil Prices and the Economic Recovery

    As oil prices steadily rise, many oil and gas experts fear higher prices could stunt economic recovery, not just in the United States but around the globe. From the Financial Times:

    This week oil climbed to $87 a barrel, its highest level since October 2008 and prompted concerns that triple-digit crude was once again in the offing. This was after a period of eight months when oil traded between $70 and $80, a narrow band that pleased oil producers without hurting consumers too much. The latest surge seems to have been prompted by rising confidence in a global economic recovery, even if most traders and bankers are still cautious about supply and demand fundamentals.

    Worries about the Greek economy have pegged prices back over the last couple of days but the more bullish Wall Street banks see prices climbing further, with Barclays Capital forecasting $97, Goldman Sachs $110 and Morgan Stanley $100 next year. But the higher prices go, the deeper the concerns that they will stifle global growth. Jeff Rubin, a former CIBC chief economist and author of a book on oil and globalisation, says: “Triple-digit oil prices are going to threaten a world recovery.”

    Kevin Drum lists higher oil prices as one of the ten reasons to be pessimistic about an economic recovery. Some analysts, however, have less concern. Hussein Allidina, a commodity strategist at Morgan Stanley, believes that triple-digit oil prices would undoubtedly slow an economic recovery but not “derail” it.  James Hamilton, a professor of economics at the University of California, San Diego says, “Changes of this size can certainly provide a measurable drag or boost to consumer spending, but are not enough by themselves to cause a recession.”

    The price of oil is  just one of many variables that can help or hurt the economy, but the consensus is rising prices will inflict economic pain. Yet Congress and the Obama administration have more interest in raising energy prices than increasing supply to lower them. The president’s phantom offshore drilling announcement in effect closes more than opens opportunities for oil and gas exploration. Carbon dioxide regulations proposed by Members of Congress and the Environmental Protection Agency would put upward pressure on oil prices. A Harvard’s Belfer Center for Science and International Affairs study found that gasoline prices would need to hit seven dollars a gallon to meet the administration’s carbon cuts in the transportation sector.

    Higher gas prices lower employment, income, and spending, and Americans will have to dip into their savings to pay for higher gas prices. Heritage economist Karen Campbell details these effects in her paper, “How Rising Gas Prices Hurt American Households.” Her paper shows that if gasoline prices were to increase by two dollars per gallon over the course of a year, employment would fall by 2.1 million jobs. Whether you are bullish or bearish on the prospects of an economic recovery, one thing’s for certain: action to curb CO2 emissions and thus raise energy prices won’t help.

    Posted in Energy [slideshow_deploy]

    6 Responses to Oil Prices and the Economic Recovery

    1. Brad Kelley, Marylan says:

      Shell Oil and other major companies argued for drilling to reduce prices in committee the other day. Maxine Waters slipped up in her response revealing her true socialist agenda. The word she was looking for is "Nationalizing" in true Chavez style. See her in committee right here: http://www.youtube.com/watch?v=niJAkR_6tKQ

      We're in trouble folks. With Pelosi drooling over $5 a gallon gas prices, these liberals are determined to undermine our economy and sweep freedom from any mention of America.

    2. Drew Page, IL says:

      Prices at the pump are now in excess of $3.00/gallon and show no signs of coming down. And the President who is so concerned about putting people back to work and reducing our dependency on foreign oil still refuses to allow drilling off California coasts or in Alaska and refuses to build more refineries, but sends $2 billion to Brazil so that they can drill off their shores.

      I am convinced that Mr. Obama does not want to reduce our dependency on foreign oil, but just the opposite, he wants to increase that dependency, just as he wants to increase our dependency on government for everything else.

      November can't come soon enough.

    3. Charles King says:

      Once again the mention of oil price rises under this administration mention gasoline prices way out of line with what the majority of citizens are able to afford. No matter what your environmental politics the movers and shakers in this country must not promote higher energy prices to advance their environmental agenda. This is not Europe. We have no great transit options i.e. national rail networks. Except for the few largest cities in the US, most Americans MUST DRIVE automobiles to work, shop, and play. Anything over $3.00/gallon or more will kill an economy not yet recovering.

    4. Larry Welch, Idaho says:

      Please tidy up your grammar, Mr Loris; "Prices is" for example and " whether your bullish or bearish" for another example.

      The Heritage Foundation is a class organization that brings historic standards of excellence to our discussions of all things American. Please continue to hold those standards high and don't allow haste or carelessness to mar the vital information you provide. Heritage brings the power of words up front in our battle to restore our country; please present them correctly.

    5. Jeanne Stotler, wood says:

      Why doesn't BHO put his money where his mouth is. Our refineries need to be updated and new ones built, this would mean hireing, We should be drilling at home and STOP buying friegn crude, it just makes good sense. This way we would not be supporting our enemies. We once had oil and gas supplied from home, let Arabs sell their oil to others and rely on our own oil.

    6. Billie says:

      Agree.

      Remember to consider who is running safety, security systems (customs) and that what is fair, is not the leadership in all levels of American government, as none in many states, comply to the fair and balanced for all mankind, Constitution.

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