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Contact Jim: jdipeso@rep.org (253) 740-2066 / 2008 Archive / 2007 Archive / 2006 Archive / 2005 Archive
Is $100 Per Barrel A Lot?
January 4, 2008
There’s a scene in the movie Star Trek IV: The Voyage Home where Kirk, on a mission to the 20th century, peddles a pair of ancient spectacles to an antiques dealer in order to raise some 20th century cash for his time traveling crew.
Says the dealer, “I’ll give you $100 for them.” Says Kirk: “Is that a lot?” The dealer shrugs, as if to say, it all depends on your perspective.
Is $100 for a barrel of oil a lot? It wasn’t so long ago that $50 per barrel was considered horrifyingly high. Energy from oil is embedded in countless products and services – transportation of people and goods, home heating, food grown on farms that use synthetic fertilizers and pesticides, plastic products, pharmaceuticals.
Yet so far, the economy has not plunged into a tailspin. Why not? Give credit, first and foremost, to efficiency, which Vice President Cheney once said cannot be the basis for a sound national energy policy. Between 1970 and 2006, efficiency measures helped the United States save the equivalent of three-fourths of current energy use. Total savings: $700 billion.
In 1979, the price of oil reached an inflation-adjusted high point exceeding $100 per barrel. In those days of odd-even rationing and gas station fistfights, the equivalent of $100 per barrel was a far greater economic burden than it is today. In the seven richest industrial nations, oil consumed per dollar of GDP has fallen by more than half since 1970.
Another factor seems to be that there is less expectation that rising oil prices will trigger another bout of inflation. It’s all a matter of market psychology. As The Economist pointed out in an analysis published last November, consumers expect central banks to keep the inflation beast tamed, so there is less demand from workers for higher pay and less pressure on companies to raise prices.
Still, when the price of oil is $100 per barrel, there is less of a margin for economic error than there is when the price is $50 per barrel. Credit worries and the moribund housing market have taken some steam out of the economy. High oil prices are another reason for consumers to cut back.
The higher the price of oil, the more money America must borrow to pay for imported oil. The higher the price of oil, the more money we are transferring to unsavory regimes overseas that spread fanaticism and dabble in nuclear weapons. And the higher the price of oil, the closer we are to an inflection point at which serious economic damage could occur.
So to answer Kirk’s question, yes, $100 is a lot for a barrel of oil. Cutting back oil dependence makes more sense now than it did at $50 per barrel.
The best news out of Congress last year was the long overdue passage of legislation to raise motor vehicle fuel economy standards to 35 miles per gallon by 2020. No need to rest on our laurels; the next necessary step is passage of cap-and-trade legislation to accelerate diversification into cleaner, less problematic energy resources.
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