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It’s finally happened; the price of a barrel of crude oil topped the $100 mark for the first time in history. While it was still able to close the trading day below $100, it’s likely only a matter of days before crude oil closes in triple digits.
Unfortunately, it doesn’t appear that there’s going to be any end to this run up any time soon; OPEC has announced that it might not be able to meet its production quota in the future due to rising world demand, U.S. inventories continue to fall and the transition to other energy sources can be described as moving at a glacial pace, at best. All of this equates to continued upward pressure on the price of crude oil.
In turn, this means we’re going to continue to see higher and higher gasoline prices.
In the past week, the average price of gasoline has jumped over eight cents, and now stands at $3.10 per gallon. In contrast, the average price per gallon was a little over $2.30 one year ago. According to GasBuddy, 40 states are reporting state-wide average gasoline prices above $3. Of the remaining ten states, only four are reporting an average gas price below $2.95.
It now appears that the once unfathomable thought of having to pay $4 for gasoline is now becoming more and more likely. The real kicker though is the fact that higher gas prices couldn’t be coming at a worse time for the American consumer.
There is no doubt that the American economy has slowed drastically over the last several months, and I think it would be very easy to argue that we have entered into a recessionary period. Job growth has slowed, unemployment is up and consumers are spending less. All of these are very clear indicators of a recession.
If gasoline prices continue to rise, this is going to eat into the discretionary funds that Americans used to spend on things like cars, electronics, home improvements, etc. If this spending dries up, businesses will have to pull back their spending as well, leading to slow growth, less job creation and more job terminations.
Long story short, reduced consumer spending creates a very pronounced downward spiral in the economy.
I realize that there is some value to higher gasoline prices, namely the backlash from the consumer may push car makers to offer more fuel efficient vehicles and force the energy companies to bring alternative fuels to the forefront. Unfortunately, these are likely to be long-term gains.
In the short term, in our current economic state, higher gasoline prices could be absolutely disastrous.
{ 3 comments… read them below or add one }
You’re absolutely correct Brian. When Americans are forced to spend more discretionary money on things such as gas and oil, other spending areas have to decrease. There is no choice. I guess the general ambivalence about the whole thing is what gets under my skin. I can’t really complain terribly as all this has been good news from my business perspective, but I too am spending more for gas is the bottom line.
T
I was driving into town the other day and noticed that gas prices dropped from $3.19 to $3.09 for the cheap stuff and I had the sad thought of “Ooh! Gas has gone down!”
Time to get a second bicycle trailer and learn how to ride safely on a state highway where police officers got killed riding bikes.
It is 10 miles into town and 15 miles to anything that we go to regularly like the grocery store or our homeschool group or church.
Yes, those oil prices are definitely getting up there! Meanwhile, gasoline prices in our area (Corpus Christi, Texas) are actually a little below the national average at $3 per gallon. But ten years ago, we had gas prices running in the $.75-$1.00 range.