$3.00 gasoline. Two questions: what are the chances, and what will the effects be. First, on the chances:
Oil prices raced to record highs above $67 a barrel on Friday as investors fretted over the world's strained capacity to refine and pump crude oil.
U.S. oil rose more than 7 percent this week and has climbed 51 percent since the start of the year. The stage could be set for further gains, with no let-up seen in global demand growth and no signs that $60-plus oil is harming the economy of the world's largest consumer, the United States...
Supply limitations were underscored on Thursday by the International Energy Agency which cut its estimate of non-OPEC supply growth. Non-OPEC producers are failing to deliver as much oil as expected this year, leaving OPEC to fill the gap.
That has not proved a problem so far, with global markets well-supplied on both crude and products.
Stocks held in OECD countries at 54 days of forward demand cover is one of the market's biggest bearish indicators, according to Calyon's Wittner. "But they are being overwhelmed, correctly, by the capacity constraints," he said...
Those high prices have yet to take a toll on the world's largest economy. Latest economic data showed U.S. retail sales jumped 1.8 percent last month, with the biggest gain in auto sales due to buyer incentives.
In real terms, stripping out inflation, oil is below the $80 a barrel on average for the year after the 1979 Iranian revolution.
But at an average of more than $53 for the year to date on U.S. oil is up nearly $23 on the average for 2003.
Economists point out that in terms of the overall economy, we're far more fuel efficient than in the past. Manufacturers especially can produce their goods with much less fuel than back in the 70's and 80's.
But our autos, while technically more efficient, aren't necessarily less immune to gasoline prices. As auto manufactures have made engines more efficient, they've met consumer demands by providing engines with more power for sportier performance or to propel larges vehicles (like SUV's). So while manufactures are more immune to spikes in energy prices than they were in the past, individual consumers are not. And that vulnerability is showing up in consumer surveys and public opinion polls.
The University of Michigan's preliminary consumer sentiment index dropped from 96.5 in July to 92.7, largely due to the rise in fuel costs. According to an economist quoted by Reuters, "What we are seeing is that these numbers are coming in line with other confidence figures, which shot ahead in May and June with oil prices falling, and now with oil prices soaring, we are seeing the effect from higher prices at the pump." And one of the effects of higher prices at the pump is higher anxiety with the American public, and increasing numbers are blaming the problem on George W. Bush:
More people are feeling that record-high gas prices soon will have their wallets running on empty.
Almost two-thirds of those surveyed for an AP-AOL poll expect fuel costs will cause them financial hardship in coming months. That's sharply higher than in April, when about half felt that way...
And costs are expected to keep rising: Prices for crude oil reached a record of more than $66 a barrel Friday. That's almost 50 percent higher than a year ago.
The poll conducted for The Associated Press and AOL News found that 64 percent say gas prices will cause money problems for them in the next six months. In April, 51 percent expressed such concerns.
Those most likely to be worried are people with low incomes, the unemployed and minorities. However, the level of concern was rising fastest among women, retirees, married people and those living in the suburbs...
Only about a third in the poll said they think President Bush is handling the nation's energy problems effectively, while almost six in 10 disagree. When asked whom they blame most for the rise in gas prices, people were most inclined to blame the oil companies, followed closely by politicians and countries that produce oil.
"I think they're all in cahoots," said Anna Marie Richard of Granada Hills, Calif.
So is there going to be any Iraqi oil coming to the rescue? Will Americans have to continue to spend as much money propping up the Iraqi economy, or will that oft-promised miracle of Iraqi oil save the Iraqi economy, the American driver and the American taxpayer?
Not according to the most recent figures from the US Department of Energy.
Just prior to the first Gulf War, Iraqi oil production was almost 3 million barrels per day. There's a lot to suggest that in pumping that much oil, that Saddam actually severely damaged the Iraqi oil fields, allowing water in to some of the oil fields, not proping up the caverns as the oil was drained out and other reckless practices. So there is some question as to how much oil reserves the Iraqis actually have. Production obviously dropped dramatically after Saddam's expulsion from Kuwait. It increased during the food-for-oil program, topping out over 2.5 million barrels daily before the invasion of Iraq. But since the US took control of the oil production from Saddam, production hasn't passed 2 million per day. And in July, according to DoE estimates, Iraqi production was a paltry 1.9 million barrels per day.
Higher fuel prices hurting American consumers and businesses, escalating fears of inflation from the higher fuel prices, and no relief for either Iraqis or Americans from Iraqi oil production, which was touted as one of the mitigating factors that would ease the problems in Iraq and make the overthrow of Saddam easier on the American taxpayer. Looking at all this, it's hard to figure out how to view Bush's role in this mess; is it a continuance of the incompetence that doomed him to a career as a failed businessman? Or is it a deliberate present to his buddies in the oil industry, orchestrated by him and his fellow oilman Dick Cheney?
At the current rate, Americans, as consumers, taxpayers and voters, may not care. They may just decide, like Ms. Richard of Grenada Hills, CA, that "they're all in cahoots" and punish the Republicans at the ballot box.