KATIE ZERR: Rise in gas prices will harm recovery

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Just as the economy takes an upturn, the one product that has one of the biggest impact on it begins to chip away at recovery.

Gas prices are on the rise and every nickel that goes into the gas tank means less money spent in other areas.

The multitude of reasons that gas prices are climbing include the increased demand for oil in places like China and India, high gasoline taxes, unrest in the Middle East, and too few refineries in the U.S. Oil rose to its highest price in a month as Iran said it had cut oil exports to six European countries and after China pledged to help resolve Europe’s debt crisis.

But in the United States, gasoline demand slid to the lowest level since 2004. U.S. drivers bought 8.01 million barrels of the fuel a day in the seven days ending Feb. 10, down 3.1 percent from a week earlier, reports show. Gasoline use over the previous four weeks was 5.3 percent below the 2011 period. Demand has dropped nearly 10 percent in recent years. It went from a peak of 9.6 million barrels a day in 2007 to 8.8 million barrels today.

Oil prices are directly related to gasoline prices. For every dollar increase in the price of a barrel of oil, gasoline prices rise 2.5 cents per gallon at the pump. Thus, a $10 increase results in abut a 25 cent increase for a gallon of gas.

Production has increased while demand here has decreased. The United States has been increasing oil production in this country and has been increasing the number of barrels of gasoline exported.

The country exported 430,000 more barrels of gasoline a day than it imported in September, 2011, according to the U.S. Energy Information Administration. That is about twice the amount at the start of the year. Industry insiders say the trend is here to stay.

The United States began exporting gas in late 2008. For decades prior, starting in 1960, the country used all the gas it produced here plus had to import gas from places in Europe.

Big wigs in the U.S. oil industry are saying this is good for the U.S. It will help the economy recover more quickly and will create more jobs in the industry.

Somehow, as we are looking at climbing gas prices taking a bigger chunk out of wallets, these claims ring hollow. It looks like a smoke screen for larger profits for the oil industry.

History shows that gas prices were much lower when we were importing more oil. In 2005 the United States imported 900 million barrels more than it exported and the national average price of gasoline on Dec. 31, 2005 was $2.19 per gallon.

If one looks into what was happening in our world at the time, there were as many circumstances that would impact the price of gasoline than there are now.

In 2005 North Korea announced it had nuclear weapons and would use them against the U.S. There was growing unrest in Pakistan and an ongoing war in Iraq. An explosion in a British Petroleum refinery in Texas killed workers and shut down production for months. Major earthquakes were recorded in four countries. Major terror attacks in occurred in Madrid, London and across the Middle East and the United States experienced its most expensive natural disaster in its history when Hurricane Katrina came ashore along the Gulf Coast.

So how can gas be more expensive now? The shaky European economy may be answer to that riddle.

Whatever the reason, it looks like we will pay more than $4 a gallon this summer.

That will take a bite out of the recovery just when we seemed to rounding the corner.

That does seem a little suspect during this volatile election year.

– Katie Zerr –

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