Turmoil in the Middle East, the tsunami and earthquake in Japan, and increased domestic and global demand have pushed oil prices upward, threatening the fragile growth in the US economy.
Sixteen of 23 economists surveyed by CNNMoney.com named high oil prices “the most serious risk facing the economy.”They worry that gas prices will continue to rise, which will have a suppressive effect on economic growth. Prices have increased 15 percent in the last two months, CNNMoney reported.
The national average for a gallon of regular gasoline was $3.549 on March 21, according to the AAA Daily Fuel Gauge. The all-time high was $4.114 per gallon on July 17, 2008. The price of gas has risen 6.65 cents per gallon in the last two weeks after rising 33 cents in the previous two weeks, Reuters reported March 20.
The International Energy Agency estimated that the violence in Libya is preventing one million barrels of oil per day from reaching the market. Libya, Africa’s third largest producer of oil, contributes about two percent of the 87.5 million barrels of oil the world consumes daily.
Worries abound about the spread of conflict beyond Libya, as Middle Eastern nations like Yemen, Bahrain, and Omar are nearing flash points. Oil prices spiked as US and European forces began bombing military installations in Libya in an effort to enforce a no-fly zone March 19.
President Obama has said he was in contact with other oil-producing nations to ensure that production would not diminish due to the recent unrest in the Middle East. The Organization of the Petroleum Exporting Countries (OPEC) has said it will increase production to replace any oil lost due to the mayhem in Libya, CNNMoney.com reported.
John Felmy, chief of the American Petroleum Institute, told Reuters that February’s increase in oil deliveries “reflects an economy gaining strength” because deliveries are a good indicator of demand. He said that economic growth has trumped the negative effects of the increase in the price of oil thus far.
In an op-ed in THE EPOCH TIMES, Peter Morici said that rising gas prices could cost the US economy 600,000 new jobs in 2011, roughly 50,000 per month. Morici, former chief economist at the US International Trade Commission, said a sustained period of high gas prices could decrease 2011 GDP growth from 3.5 – 4 percent to 3 – 3.5 percent.
Consumers have started cutting back on luxury goods, unnecessary driving trips, and eating out. Some have managed their budgets more tightly by replacing higher-priced goods with cheaper options.
An analysis by the US Department of Energy said that the average household could face $700 in additional fuel costs this year.President Obama said that the tax cut compromise reached last year, which will grant working families about $1,000, would help families cope with the increased prices.
The president defended his administration’s energy policy, saying that “common sense” regulations and safeguards are necessary to prevent another oil spill.
“We are encouraging offshore exploration and production, we’re just doing it responsibly,” Obama said.
Congressional Republicans criticized the Obama administration for placing a moratorium on deepwater drilling.
“While the Obama Administration claims to be committed to American energy production, the facts and its own actions say otherwise,” House Speaker John Boehner said in a statement March 11.
The Federal Reserve said that the increase in energy prices will be “transitory,” and that the level of core inflation, which does not take into account the unstable energy and food markets, will remain at manageable levels..
Accordingly, the recent upsurge in energy prices has not prompted the Federal Reserve to prematurely end its $600 billion treasury bill bond-buying program, called quantitative easing, which is scheduled to conclude in June.
The tsunami and earthquake in Japan is likely to have an impact on the market, as one quarter of Japan’s refining capacity is shut down and much oil will be needed to help in the relief and reconstruction effort.
Bruce McCain of Key Private Bank told CNNMoney.com that “basic seasonal pressures will take a toll on gas prices” as the nation enters the peak summer driving season. McCain said he did not think rising gas prices would cause a new recession but that they would stunt the current fragile economic growth.
Mickey wants da money. Contact him at mgardell@nd.edu.
