gasoline pump pricesAnalysts raised their oil-price forecasts this week to a consensus of $86 per barrel by 2011, according to a Reuters poll. That's an increase of $3 per barrel from the November forecast. But if the analysts are right, oil at $86 per barrel will likely have a trivial economic impact: After all, the crude-oil price closed above $89 per barrel Monday.

On Monday evening, I appeared by phone (thanks to a sudden snowstorm) on CNBC's The Kudlow Report to debate whether rising oil prices will derail the economic recovery. Here are four reasons I think they won't:

  • We're using energy more efficiently, and we've diversified the economy. The oil price spikes in the 1970s and 1980s had a big negative effect on the U.S. economy. But back then, according to the Energy Information Administration, energy represented 14% of gross domestic product. That figure is now a much lower 7%. That means the country produces more using less energy -- and the rising cost of energy has less of an overall impact. And that's why the U.S. GDP continues to rise -- even as oil prices rose -- in the 2000s.
  • The recent increase in energy prices hasn't slowed economic growth. Gasoline prices have grown 11% in the last few months, with no perceptible slowing in economic growth. The most recent quarter showed GDP increasing at a 2.5% rate.
  • When oil prices hit $147 in 2007, the economy kept expanding. Before the recession, the U.S. economy continued to grow even when oil prices were much higher. During the times when oil prices breached $90 a barrel in 2007 and 2008, the GDP was growing more than 2.5%.
  • Oil prices are more likely to fall than rise. According to BloombergBusinessweek, oil prices and the dollar are almost perfectly negatively correlated -- that is, when the dollar's value goes up, oil prices go down. With the expectation that the dollar will strengthen in 2011 and 2012, due to accelerating U.S. economic growth and progress toward balancing the budget after the 2012 election, oil prices likely will fall.
While predicting the future is a task rife with pitfalls, my bet is that oil prices won't slow the economy. Of course, if oil hit $250 a barrel, I would probably change my mind. But at some point, rising prices would crimp demand, again causing prices to fall.

Moreover, the recession that began in December 2007 was caused by the collapse of financial institutions, not higher energy prices. If -- as we've done with energy -- we could get Wall Street to become more efficient and lessen its impact on the economy, we'd really be making progress where it counts.

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Vinny

Wall St morons living in their wealthy bubble predict that increasing gasoline costs will have no effect on the US economy. How stupid can those people get ? It's totally illogical to say that gasoline prices rising to $4.00 a gallon will not make any difference to millions of people living paycheck to paycheck or commuting long distances to keep a low paying job. I get so tired of the predictions made by thos dumb-ass people living in their walled in enclaves and never venturing out into the REAL world where most Americans live. Cutting back is not an option when gasoline prices go beyond $3.00 a gallon simply because real incomes are NOT rising so to claim that there will be no problem with higher gas prices is basically too stupid for words.

January 03 2011 at 11:12 AM Report abuse rate up rate down Reply
j0ygasm

OIL -

Here's an interesting read, important and verifiable information:

About 6 months ago, the writer was watching a news program on oil and
one of the Forbes Bros. was the guest. The host said to Forbes, "I am going to
ask you a direct question and I would like a direct answer; how much oil
does the U.S. have in the ground?" Forbes did not miss a beat, he said, "more
than all the Middle East put together." Please read below.

The U. S. Geological Service issued a report in April 2008 that only
scientists and oil men knew was coming, but man was it big. It was a
revised report (hadn't been updated since 1995) on how much oil was in
this area of the western 2/3 of North Dakota , western South Dakota , and extreme eastern Montana ...... check THIS out:




http://bakkenshale.net/bakkenshalemap.html




The Bakken is the largest domestic oil discovery since Alaska 's Prudhoe
Bay, and has the potential to eliminate all American dependence on foreign
oil. The Energy Information Administration (EIA) estimates it at 503 billion
barrels. Even if just 10% of the oil is recoverable... at $107 a barrel,
we're looking at a resource base worth more than $5..3 trillion.

"When I first briefed legislators on this, you could practically see their jaws hit the floor. They had no idea.." says Terry Johnson, the Montana
Legislature's financial analyst.

"This sizable find is now the highest-producing onshore oil field found
in the past 56 years," reports The Pittsburgh Post Gazette. It's a
formation known as the Williston Basin , but is more commonly referred to as the
'Bakken.' It stretches from Northern Montana, through North Dakota and
into Canada .. For years, U. S. oil exploration has been considered a dead
end. Even the 'Big Oil' companies gave up searching for major oil wells
decades ago. However, a recent technological breakthrough has opened up
the Bakken's massive reserves.... and we now have access of up to 500
billion barrels. And because this is light, sweet oil, those billions of barrels
will cost Americans just $16 PER BARREL!

That's enough crude to fully fuel the American conomy for 2041 years
straight. And if THAT didn't throw you on the floor, then this next one
should - because it's from 2006!

U. S. Oil Discovery- Largest Reserve in the World

Stansberry Report Online - 4/20/2006

Hidden 1,000 feet beneath the surface of the Rocky Mountains lies the
largest untapped oil reserve in the world. It is more than 2 TRILLION
barrels. On August 8, 2005 President Bush mandated its extraction. In
three and a half years of high oil prices none has been extracted. With this
motherload of oil why are we still fighting over off-shore drilling?

They reported this stunning news: We have more oil inside our borders,
than all the other proven reserves on earth. Here are the official estimates:

- 8-times as much oil as Saudi Arabia
- 18-times as much oil as Iraq
- 21-times as much oil as Kuwait
- 22-times as much oil as Iran




- 500-times as much oil as Yemen

- and it's all right here in the Western United States .

HOW can this BE? HOW can we NOT BE extracting this?
Because the environmentalists and others have blocked all efforts to help America become independent of foreign oil! Again, we are letting a small group of people dictate our lives and our economy.....WHY?

James Bartis, lead researcher with the study says we've got more oil in this very compact area than the entire Middle East - more than 2 TRILLION barrels untapped. That's more than all the proven oil reserves of crude oil in the world today, reports The Denver Post.

Don't think 'OPEC' will drop its price - even with this find? Think
again! It's all about the competitive marketplace, - it has to. Think, OPEC just might be funding the environmentalists?

Got your attention yet? Now, while you're thinking about it, do this:

Pass this along. If you don't take a little time to do this, then you
should stifle yourself the next time you complain about gas prices - by doing NOTHING, you forfeit your right to complain.

Now I just wonder what would happen in this country if everyone of you sent this to every one in your address book.

By the way...this is all true. Check it out at the link below!!!
GOOGLE it, or follow this link. It will blow your mind.

http://www.usgs.gov/newsroom/article.asp?ID=1911
>

December 24 2010 at 8:47 PM Report abuse rate up rate down Reply
jedmec

In 2007 the price went to $147 a barrel.In 2007 the recession started .What do you think triggered it?I know people that coulnd not drive to work because it cost more in gas than they made in a slow day.There bugets were tight already and over extemded in debt when suddenly they were paying $200 more in fuel costs a month.Then food prices shot up to cover shipping prices,that could be another $200 dollars extra a month they werent used to spending.Thats when they stopped buying the extras that helped the economy move.Gas prices a pushing up before a recovery it will cause hesitation in spending again.

December 24 2010 at 11:11 AM Report abuse rate up rate down Reply
Richard

cohen, you state that the banking industry caused the economic collapse, and therefore, are you saying that escalating oil prices had little or no effect. i must disagree, the high cost of crude was the catalyst for all this countries economic woes. many working peoples of this country live within budget restraints that provide little margin for additional expenditures. and futhermore, i would like to see a congressional inquiry into the financial winners that have been brought about by the invasion of iraq - like (cheney)halliburton and the (bush)texas oil industry. to me, it all smacks of conspiracy in this nations highesy office.

December 22 2010 at 12:00 PM Report abuse rate up rate down Reply
Big John

I am sure most of you have heard the saying " Back in the old days" about when prices were down and mostly stable. Well, the old days was in the 1990's when gas ran about $1.00 a gallon for about eight years under Clinton. The for some unknown and unforeseen reason oil started going up in January of 2001 and it has not stoped since, with the exception of the meltdown. I wonder how it is oil went from $35.00 a barrel to over $140.00????? Makes you wonder!!!

December 21 2010 at 5:14 PM Report abuse +1 rate up rate down Reply
wehew

I think that these economists are missing the obvious. American consumers obtain their basic utilities, heat, oil, and transportation largely from oil. As these necessities increase in price, they are likely to snap shut their wallets, opting to forgo other purchases. This will of course effect the economy. Historically, a significant rise in oil prices has always been the precursor to a recession. Why would another spike in oil prices result in large scale economic results that are any different?

December 21 2010 at 4:30 PM Report abuse +3 rate up rate down Reply
1 reply to wehew's comment
jlsntx

Not electricity. Everyone seems to think we get electricity from oil. We don't. We get the majority of our electricity from buring coal. Another large portion comes from nuclear plants. The remainder is natural gas (domestically produced) hydroelectric, then the miniscule amount from the renuables like solar, geothermal, windmills, etc. There is a fraction of a percent which comes from burning fuel oil, but fuel oil generation is usually reserved for emergency situations or in very remote areas. We produce, in this country, from our own oil wells, enough fuel oil to power all oil generation of electricity. We don't import fuel for electricity. The president stood at a windmill factory just prior to his taking office and said that the windmills built in that factory would lessen our dependence on imported oil. Wrong! Again! And again, and again, and again.

December 22 2010 at 10:00 AM Report abuse +2 rate up rate down Reply
vicla1942

we should have nat gas infrastructure and cars.The president can mandate this as
a matter of national security. dme should be developed as a transoportation fuel.
the volkswagen polo, blue motion engine gets 71 mpg , why is it not sold in u.s?
Corrupt oil lobbyists control our corrupt bribe taking congress, vote the bums out and get new rules, downsize to 200

December 21 2010 at 3:26 PM Report abuse +2 rate up rate down Reply
1 reply to vicla1942's comment
jlsntx

We're drilling gas wells faster than the public realizes. From North Dakota all the way to Texas, even in northern Colorado. New York State has a huge natural gas deposit that the dopes in Albany won't allow to be utilized. We're drilling with (natural) gas at the $4/mmcf. Got to be something driving this drilling frenzy other than the price. $4 (natural) gas is cheap. I say, the government is getting ready to impliment the Pickens Plan.

December 21 2010 at 4:22 PM Report abuse +2 rate up rate down Reply
Michael

Isn't strange how the movers and shakers have manipulated oil to such a high price, in spite of the fact that there is a glut of oil, with barely enough places to store it. It would seem that even the movers and shakers see a plummet in their manipulations as futures contracts a few months out and toward summer, when demand ussually rises, are trading lower than current spot prices. If our government really wanted to turn this country around, we would be developing our own energy resources here at home. As I am sure many are not aware, as the media thinks it unimportant, the oil finds in the area of eastern montana, and the western dakotas, which were discovered over the last few years, are believed to hold more oil than saudi arabia. Imagine developing these fields, and becoming energy independent. Imagine the jobs created. Imagine the the middle eastern terrorists losing their funding streams. Imagine increased revenue pouring into our government without raising taxes. But you would indeed have to have a good imagination to beleive our politicians care about the US citizen, or actually would do something that is so common-sense. Count on liberals to fight tooth and nail any developement of our own energy reserves, and remain silent as cuba, china, and many other nations develope off shore oil production sites just off our own shores. To me, we live in truly crazy times.

December 21 2010 at 3:24 PM Report abuse +3 rate up rate down Reply
1 reply to Michael's comment
jlsntx

Imagine the turnaround in our economy if we could stop importing and produce all we need here in our own country at the hands of our own countrymen. Methinks there's a stink in Denmark. China and India pollute at prodigious rates, yet we still import from them. The terrorists use our money from the purchase of oil to attempt to destroy free countries. As we say in the south.....THAT AIN'T RIGHT!

December 21 2010 at 4:25 PM Report abuse +3 rate up rate down Reply
Gumby

Workers are being given additional workloads because they drive alone to work . I think that if more workers start carpooling, more workers will be hired to take up the workload off the long suffering workers. Peter, you think $90 oil barrels is not that bad but this is what is keeping workers from being hired back for lack of energy conservation efforts... Replacing light bulbs is not the only solution.. Carpooling is another solution to our employment issues. Public transporation is too expensive to implement with operators collecting pensions.. Carpooling is much quicker to implement with the database technology and wireless technology we already enjoy. We are still so unsure about lost tax revenues from declining oil production as result of more emphasis on carpooling or telecommuting. We are more worried about tax revenues than job creation. We dont really want oil prices to come down.. Oil prices is what caused the big mess you are seeing around right now... It is itching to go up again at first sound of a pin drop!

December 21 2010 at 3:15 PM Report abuse -1 rate up rate down Reply
jshedl10411

Cohan, you are a B--- S--- artist, but not a very good one. Quit trying to sell this crap to the American Public. You are working I am not. At this very moment Congress is looking to extend unemployment benefits for those who have exhausted their 99 week limit. Do you and the other 80% of working Americans wish to keep paying for even longer term unemployment insurance? The last spike in oil in 2007 is what sent the economy over the edge. I am suprised that the media no longer reports the profits of "BIG OIL" as they did during 2007. Why piss off more Americans who are laid-off from work.

December 21 2010 at 3:13 PM Report abuse +4 rate up rate down Reply