Will Rising Gas Prices Put Brakes On The Economy?
Oil has been trading at more than $100 a barrel in the U.S. the past couple of days, largely because of fighting in Libya. That has gasoline prices up, too.
The Energy Information Administration says last week the average price for regular gasoline across the country jumped nearly 19.4 cents to $3.34 a gallon. That was the steepest one-week rise since Hurricane Katrina disrupted oil production in the Gulf of Mexico in 2005.
Now there are concerns higher gas prices could stall a recovering economy. You can count Joe Occhipinti of Portland, Ore., among the concerned.
"I'm getting $20 worth of gas," Occhipinti said, standing near his white work van at an Arco station. "I can't afford to fill it up."
Occhipinti, a cabinetmaker, estimates he's spending about $100 a week on gasoline. That makes it difficult to keep his costs down and his jobs profitable.
"Lumber — all that other stuff — I can factor in, but this thing happens with Libya and now all of the sudden gas prices are raised up, but I made my bid three months ago," he said.
Occhipinti also is relearning a lesson from 2008 when gas sold for $4 a gallon: Spending more on gas means you have less to spend elsewhere.
"One of the things that I miss a lot [is] taking my wife out to dinner," he said.
Instability in the Middle East is largely blamed for the most recent jump in oil prices. But government data show a steady increase since September. That's because demand for oil has been going up in the U.S. after declines during the recession. Then the fighting in Libya prompted traders to worry about supply.
"If you were to remove some of that oil supply, we'd be in a situation where demand could exceed supply, and that's just a scary moment in economics," says Patrick DeHaan, senior petroleum analyst at GasBuddy.com.
Earlier this week, Federal Reserve Chairman Ben Bernanke appeared to downplay fears that higher oil prices would be a drag on the economy. He said that would be a concern only if it led to persistent inflation.
Three Democrats in Congress sent a letter to President Obama last month, asking him to tap the country's Strategic Petroleum Reserve to bring gas prices back down.
Dan Weiss, senior fellow and the director of climate strategy at the Center for American Progress, says when gas reaches $4 a gallon, the president should announce he's releasing 30 million barrels into the open market.
"The oil can be put on the market, literally, within two weeks," Weiss says. "Selling reserve oil is a fast, proven way to put a pin in an oil price balloon and pop it."
Weiss points out that in 2005, when Hurricane Katrina stalled oil production in the Gulf of Mexico, then-President George W. Bush released 30 million barrels of oil from the reserve and prices subsequently went down about 12 percent.
The oil industry opposes this plan, saying the SPR should be used only for emergencies. The American Petroleum Institute has instead called for friendlier regulations that would allow companies to drill for more oil in the U.S. and off its shores.
But even with an administration the industry considers unfriendly, domestic oil production is increasing, thanks to oil booms in places like North Dakota. And oil imports from other countries have gradually been on the decline every year since 2005.
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