Wednesday, March 2, 2011


Well it depends on who you ask.

Some say it’s 1973 all over again. Or is it?

• Yes, we have unrest in the Middle East and oil prices are rising.
• No, we don’t have the insane set of price and allocation controls that led to the shortages and gas lines of the 1970s (at least not yet).
• Yes, the soothsayers’ crystal balls foretell the imminent depletion of the world’s oil reserves, just like in 1973.
• No, in terms of energy use per real dollar of GDP, our economy is about 30 percent more efficient than in the 1970s.
• Yes, many foreign oil producers don’t seem to like us.
• No, our major suppliers now are Canada and Mexico, who get along with us just fine.
Though high oil prices are not good for the economy, not every spike portends disaster. There have been at least four trough-to-peak increases of $15 per barrel in just the past two years. Last week’s $100 price was within $10 of the last May’s price.
For now, there is enough spare production capacity to make up for lost Libyan production. Of course, if the unrest spreads to major oil producers and leads to significant and persistent production cuts in those countries, price could rise well above $100. But even then, it need not be 1973 redux.
The thing to understand is that in the past 14 days the cost per gallon has risen by over 50 ents in many places. That is a very fast run up and its causing an immediate effect on the economy. We are only at the beginning of March and we have gas prices breaking the $4 USD threshold in many places.

One thing to keep in mind also is that in July 2008 the unemployment rate was 4.9% compared to today's 9% rate.  A runup in prices to $4-5 USD per gallon will have very far reaching effects on the economy in general and amine conventions in particular. 

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