Higher oil prices could still stifle economy, upset car makers

U.S. auto makers betting big that small cars are a relic of the past

America’s recent oil boom has begotten a dangerous and false euphoria. Many economists and pundits have concluded rising oil prices are hardly damaging to the U.S. economy. In 2006, U.S oil production had bottomed at about 6.8 million barrels a day and the country labored under a $271 billion petroleum trade deficit. That taxed gross domestic product by at least 2.55 and employment by 3.5 million jobs during the Great Recession. The shale boom made the problem easier, and America’s energy policy makers — not nearly all of whom are in Washington — and critics of conservation seem to believe America can burn all the gas it likes and America is headed for a new prosperity as a net oil exporter. However, the problem has gotten easier but it has not gone away. This year, the overall petroleum deficit—crude oil and refined product imports less exports—will likely be about $100 billion and reduce aggregate demand by about 0.7% and employment by 1 million. The Trump administration recognizes the foreign policy and economic benefits of freeing America from import dependence and deserves significant credit for rationalizing petroleum production regulation. Along with rising oil prices, this is pushing up crude yields in the Permian and Bakken fields but net oil imports are still about 3.3 million barrels a day. Hence, when the price of oil rises, oil producers and workers’ incomes do rise but everyone else loses even more though higher priced gas, heating oil and feedstock for the petrochemical industry. And the overall drag on growth, employment and wages gets worse. The Saudis with help from Vladimir Putin, state entropy in Venezuela and sanctions on Iran have driven up oil and pump prices again—and Saudi Crown Prince Mohammad has set a target of about $80 per barrel. He needs that much to balance the kingdom’s budget, but the Saudis and Russians remain concerned about how much and how quickly they can push oil prices. If OPEC is dead as its American detractors allege, the crown prince has got a corpse dancing the supernatural—that has pushed gas prices to nearly $3 a gallon.