Record Oil Prices Will Hurt

Today oil hit a new record of $86 per barrel.  The analysts were saying that while it is high, it's not as significant as in the 70's because our economy is not as dependent on oil.  But is that really true?

True, we don't manufacture as much here as we used to and as a service economy we don't need as much oil for industrial purposes.  But even where we have gotten more efficient, this efficiency has been swamped by the sheer increase of our need for oil.  An increase that isn't efficiency based, but greed-based.

  • Coke Cans, plastic bags, tupperware  - everything has gone to oil-based plastics.
  • There are more cars on the road than ever before and fuel efficiency has decreased over the last 15 years with SUVs and min-vans.
  • Houses are bigger than ever and need more heat and cooling.
  • More people live in the South and require more energy intensive air conditioning.  It takes more energy to cool a home than it does to heat it.

Lastly, while we may not manufacture as much in the United States as we used to, countries like China are still impacted by rising oil costs.  They take these costs and pass them on to us.  So while it doesn't appear as a rise in oil, or in our energy costs, it ripples through all of the goods that we import from abroad.  Which means our foreign imports suffer a double whammy of a falling dollar and rising costs due to energy.

So far, the US has been able to manage rising fuel costs.  But if they keep going up, the same analysts who claim there is no inflation will be saying that energy is simply not as big a factor as it used to be.  As I fill up my oil tank for the first winter cold spell, I don't know what they are talking about.

 

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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