Ecocentric

Oil: Could the Economic Recovery Be Running Out of Gas?

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Gasoline is like the circulatory system of the American economy. When it’s working fine, you barely notice it. But if something goes wrong, you end up in mortal trouble really fast.

Is the struggling U.S. economy headed towards a gasoline-induced heart attack? A report by the Lundberg Survey of American cities found that gas prices—which fell sharply from $4+ a gallon highs in 2008 as the economy tanked—are creeping back upwards. The survey found that the average price of a gallon of gas in the U.S. had hit $2.91 as of December 3, up 3.9 cents from a survey taken two weeks before. It’s not hard to see why—crude oil prices have gone up as well, hitting $89 a barrel, a 25-month high last seem right around the time Barack Obama was elected President. And gas prices are likely to keep rising, according to pollster Trilby Lundberg:

The rise in prices predicted by Lundberg is based on the necessity for gas retailers to reflect an increase in the wholesale price of gas at the pump.

Profit margins on a gallon of gas for a retailer fell by about half in the last two weeks, Lundberg said. The retail margin for retail is less than six cents per gallon. Retailers will have to raise prices at the pump to make up for it.

“We may easily pay three dollars per gallon or more by Christmas,” Lundberg said.

As the global economy continues to recover, we’re likely to see oil prices continue to rise as well—just last week, the major crude exporter Venezuela said that $100 a barrel was a fair price for oil. As Lisa Margonelli (author of the excellent book Oil on the Brain) pointed out in the Atlantic, $100 a barrel could translate to $4 a gallon gas, meaning American drivers would spending $1.5 billion a day on fuel. With families making $50,000 a year already spending $7,900 a year on cars and fuel (see here), any long-term increase in gas prices could have a major impact on consumption and recovery:

This is a big hemorrhage of money that could be put to other uses that would boost our economy. And these rising costs are largely out of US control: Cold weather in Paris, the value of the dollar as a result of the EU bailout of Ireland, Chinese electricity rationing that has led to increases in diesel demand, Nigerian militants attacking pipelines in a far-off dispute in the Niger Delta…

We can’t control the price of gas, but we can control our national response to it. If you haven’t started taking fuel economy into account when you’re buying a new car, now would be a good time. (With the Age of Electrics finally here, you could also try a Volt or a Leaf.) As Margonelli points out in her post, high-speed rail can offer an alternative to driving, but only if we’re willing invest in creating new lines—and the incoming Republican majority is threatening to withdraw unpaid stimulus money for all projects, including transportation upgrades. It’s happening on the state level as well—Chris Christie, the Republican governor of New Jersey, single-handedly killed a Hudson River tunnel that would have doubled commuter-rail service to Manhattan.

The good news is that while Republicans seem set against investment in transit and other projects that could relieve our addiction to oil, there’s still action being taken on the local level. I had a chance to speak last week with Laura Spanjian, who was recently hired away from San Francisco to run Houston’s green initiative. The Texan city—the fourth-largest metropolis in America—is the oil and gas capital of the world, but it’s looking for alternatives as well, putting together a privately funded electric vehicle charging infrastructure. “We want to be on the edge here, and people in Houston are embracing this issue in a big way,” says Spanjian.

We’ll need alternatives, and in the short-term we’ll need more oil as well, including some domestic production. But we can’t drill our way out of $4 a gallon gas—not even if we open up the Arctic National Wildlife Refuge. The factors Margonelli identified—including growing global demand—mean we’re likely locked into rising prices. We need to adapt—or our recovery may stall before it even begins.