Oil's New Threat to the U.S. Economy
January 2, 2011
With the U.S. economy finally showing a pulse, oil prices hit $91.38 a barrel on the New York Mercantile Exchange, promising to sink the shaky recovery now underway. Federal Reserve Board Chairman Ben S. Bernanke has done back-flips keeping the pump primed with historic low interest rates and recent “quantitative easing,” buying up to $600 billion in treasury bills. Friday’s unemployment report showed the first signs of economic recovery, with the jobs picture improvong with unemployment claims dropping to just under 400,000. Without any restraint, traders on the NYMEX threaten to push oil prices back over $100 a barrel, not, as some would have you believe, because of a weak dollar but precisely because of frenzied trading. High oil prices translate into steadily rising pump prices and could stall the fragile recovery into a “double-dip” recession
Steadily rising oil prices under former President George W. Bush helped oil companies collect the biggest profits in the industry’s history. Allowing one industry to gouge the economy, at the same time hurting virtually every other industry, makes no sense. President Barack Obama, his Treasury Secretary Tim Geithner, Fed Chairman Bernanke and key members of the House and Senate Commerce Committees must find a way to prevent the oil industry from running amok. Whatever happens to the world economy, the NYMEX and other foreign oil exchanges shouldn’t hold the rest of the country hostage. High oil prices rob consumers on surplus cash needed to grow the consumer economy. When pump prices rise, it’s a punitive tax on the consumer, something capable of stalling the economy. One industry shouldn’t profit while all others decline.
National pump prices for unleaded regular gasoline now average $3.072 a gallon. Oil prices have risen 34% since May, not because of added global demand or shortages but because traders on the NYMEX have worked oil, like precious metals, to drive up prices. “A dollar more a gallon isn’t that much—probably about $750 a year for each motorist, but there’s a psychological aspect of gas prices,” said energy expert Fred Rozell. “People are going to be up in arms about this,” watching helplessly while Wall Street drives oil prices through the roof. Whatever the excuse du jour about rising oil prices, there’s no control over Wall Street or Foreign energy traders, bidding oil prices into the stratosphere. Oil companies combined profits for first three quarters of 2010 hit $59.7 billion, a whopping 49% increase from 2009. Next year’s profits expect to exceed $81 billion.
Just when Obama’s economic team saw light at the end of the tunnel, the oil industry resumes its strangle hold on the business community. When Bernanke started his “quantitative easing” buying up U.S. treasuries last November, commodity markets started to escalate. Speculators predicting runaway inflation have diverted investments into tangible commodities like oil and precious metals. Expectations of “hyperinflation,” not supported by actual data, have fueled inflation in commodity prices, leading runaway price increases. Today’s oil and gold prices aren’t correlated to supply and demand other than irrational bidding going on at the NYMEX and other foreign commodity exchanges. Energy analysts at Morgan Stanley predict rising demand in China and India, despite a recent Energy Dept. report predicting about 20% less U.S demand for gasoline over the next 10 years.
White House officials should call an oil summit, much the same way former Vice President Dick Cheney did when he took office in 2001. Obama must make a strong case that he expects stable oil prices to help the ailing U.S. economy. Pushing oil prices through the roof can only harm economic recovery by robbing consumers and businesses of the needed cash to fuel the consumer spending. Former Shell Oil president John Hofmeister predicts Americans will pay $5 a gallon by 2012. He sees oil prices exceeding the $147 a barrel in 2008. “That means oil close to $200 a barrel,” said oil analyst Stephen Schork. “We can see it, but we could also see a global depression too,” said Shork, reminding the administration to get a handle on runaway oil prices. Nothing on the horizon short of another major terrorist attack or natural cataclysm hurts the economy more than runaway oil prices.
Before the oil markets return to the price gouging seen in 2008, Obama must take a more forceful position on the NYMEX. No one industry should be allowed to sabotage economic recovery and kill jobs. Oil industry officials must call off the dogs at the NYMEX and let energy prices roll back to pre-inflation levels. OPEC officials are perfectly content with $60 a barrel oil. They see no advantage other that destroying demand and hurting the global economy to pushing oil prices to the breaking point. Hofmeister is right on warning that inflated oil prices can also trigger a global depression. Before it’s too late, Obama must convene and oil industry summit at the White House to figure out what must be done to rein in runaway oil prices. It’s not going to help Barack’s bid for a second term to allow the oil industry to sabotage the jobs market and kill economy recovery.
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