Economic growth and costly oil
Nov 3, 2009 10:39 AM, By Hembree Brandon, Farm Press Editorial Staff
The 20-cents per gallon spike in the price of gasoline the week of Oct. 18 (10 cents of that in one day), pushing it to $2.50 per gallon in our area, is yet another reminder of the crumbling ledge on which we stand in terms of dealing with energy costs.
Gasoline prices have been lower over the past several months, hovering mostly around the $2 level, down about half from the peak of $4 or so.
But the relief was not without its own terrible cost — U.S. and world economies in freefall, brought on primarily by a banking/finance sector playing fast and loose with the rules of sound fiscal policy, but also by oil prices north of $140 per barrel that were sucking the life out of businesses and making it ever harder for families to make ends meet.
Big oil raked in gigantic profits, setting new records each quarter, while mega-billions flowed into OPEC coffers.
In the year-plus of the world trying to stave off a global depression and collapse of the financial system, with millions of people jobless (or worried that they might be) and thousands of businesses going belly-up (including a number of ethanol operations), demand for oil nosedived, supplies mushroomed to the point that companies were paying $75,000 per day to store oil in supertanker ships idled offshore, and speculators having reaped enormous profits and helped drive oil prices to stratospheric levels, took their gains and moved to other markets.
Yes, we were paying less at the pump, but a far greater real price when factoring in the cost of an economy on life support.
Today, the world is still awash in oil. There are no shortages. Supertankers full of crude continue sitting idle around the world. And hey, $2.50 per gallon beats $4 or more.
But, as we’ve seen many too many times, stability is not an attribute of energy price.
There are at least tentative signs of recovery here and there in the world, and recovery usually foretells a growing demand for oil. Most notably, the giant manufacturing machine that is China is already ramping up production of everything from toys to medicines — and China is a major user of and competitor for oil.
More demand points to higher prices, and speculators, sensing new opportunities for profit, are moving back into oil.
Toss into that scenario U.S. refineries which have cut back on the amount of gasoline being processed, and there is even more upward pressure on price.
Will we see $3 or even $4 gasoline again? Nobody knows. But, many analysts say, strengthening economies will boost demand for oil, and price will likely follow demand upward.
And then the question becomes: Would we rather have relatively cheap oil/gas in a lousy economy teetering on the brink of depression or a strengthening economy with increasingly costly oil/gas?
e-mail: hbrandon@farmpress.com
