The day of the $100 fill-up is upon us. Stopping at the corner gas station to replenish your Chevy Suburban’s 30-plus gallon tank could easily set you back $115. That’s an astonishing sum for Americans accustomed to driving everywhere for everything at prices that are uncommonly cheap by world standards.
But get used to big numbers at the pump. The price of crude oil for July delivery broke the $135-per-barrel barrier on the New York Mercantile Exchange on Wednesday before closing slightly lower on Thursday at just below $131. Record high crude prices led, in turn, to an average per-gallon price of $3.81 at the pump and predictions that gasoline would surge over $4 as the summer travel season begins.
Oil futures prices have more than doubled in the past year, accelerating recently as projected inventories declined, and traders bought additional oil to cover previous wrong-way bets. “It is not a growing market,” Olivier Jakob, managing director of Petromatrix GmbH, told Bloomberg,com. “It is also facilitating the move upward [in price].”
Some traders expect crude prices to exceed $200 this year, driven not only by increased global demand and dwindling supply, but by investors who believe — no pun intended — that the petroleum industry has the world over a barrel.
China and India are demanding vastly more oil while the U.S. seems unable to modify its auto-driven lifestyle, at least in the short run. “The only realistic option that we have, and there is none other, is to use biofuels,” Vinod Khosla, the co-founder of Sun Microsystems Inc., told Bloomberg.
Finger-pointing on all sides
Absent speculators, the price of crude should be somewhere between $35 and $90 per barrel, oil executives told Congress on Wednesday. But Sen. Herb Kohl, D-Wis., said at a Judiciary Committee grilling of oil executives: “People don’t get it. Demand is not crazy. Why are prices going crazy?”
The question prompts finger-pointing on all sides. Oil executives blame financial bettors. Financial bettors blame supply and demand. Some members of Congress blame oil companies for gouging and the Organization of Petroleum Exporting Countries for bottling up production. OPEC blames speculators, wasteful U.S. consumers, and an aimless U.S. energy policy. Everyone blames China’s growing fuel appetite.
The consequences have battered the U.S. economy for months, with these new developments on Thursday:
Ford Motor Co., after recording a $100 million first-quarter profit, announced that it no longer expects full-year profitability in 2009. It also announced further plans to curb U.S. production, blaming high oil and steel prices.
American Airlines blamed fuel prices as it began to absorb complaints about a new policy: charging a fee of $15 for each customer’s first checked bag. A wave of criticism began as the quality of air travel continued to decline.
“Everyone is going to try to beat the system,” said industry analyst Henry Harteveldt. “When you check your bags for free on Greyhound, but not on an airline, it’s a sad comment of the state of the whole industry.” American will lean heavily on federal screeners to check carry-on items, now expected to multiply and cause more crowding in security lines and in the aisles of aircraft.
“Before you get too upset,” wrote Wall Street Journal columnist Scott McCartney, “know this: Oil prices are just killing airlines … They are paying billions, yes billions, of added dollars in higher fuel prices.”
A finite resource
Amid all the accusations about who’s to blame for high oil prices (some Minnesotans will even blame higher gasoline taxes), comes the undeniable truth that petroleum is a finite resource that will be increasingly difficult to cheaply extract.
The Wall Street Journal reported that the world’s top energy monitoring agency is preparing a sharp downward revision of its oil supply forecast. The shift, said the paper, “reflects deepening pessimism over whether oil companies can keep abreast of booming demand.”
The Paris-based International Energy Agency’s inventory of 400 top oil fields won’t be completed until November. But, said the Journal, “the bottom line is already clear: Future crude supplies could be far tighter than previously thought.”
How to cope?
Americans can’t change their lifestyles in an instant, but that’s probably the inevitable solution. “The idea that global oil production will soon peak is rapidly moving from fringe belief to mainstream assumption,” Paul Krugman wrote this week in the New York Times. Old Europe sets a good example, he said, finding a way to prosper with gasoline prices exceeding $8 a gallon. Germans, for example, own smaller cars and drive considerably less. They shop locally and use public transit more often. And they live in pleasant but compact neighborhoods of a kind that barely exist in America.
“Berlin is a city of trains, buses and bikes, while Atlanta (about the same size) is a city of cars, cars and cars,” Krugman wrote. “Americans,” he concluded, “will face increasingly strong incentives to start living like Europeans — maybe not today, and maybe not tomorrow, but soon, and for the rest of our lives.”
Steve Berg, a former Washington, D.C., bureau reporter, national correspondent and editorial writer for the Star Tribune, reports on urban design, transportation and national politics. He can be reached at sberg [at] minnpost [dot] com.