So, for many Americans, gas mileage may be an important factor when buying a car -- but it's hardly the only one. That's why many drivers will delay switching from an SUV or other fuel-thirsty car to something a lot more efficient until it's an absolute budgetary requirement.
But maybe now it'll become prudent for Americans to consider that switch. After all, the recent surge in oil prices could be indicative of a coming oil shock, or at least a continued, steady rise in oil prices. Or are the gasoline price jumps due more to short-term geopolitical events, such as the current Middle East unrest?
One theory argues that it may be premature to consider a higher-MPG vehicle. True, oil has risen from $87 to more than $104 per barrel in about a month, triggering a 40-cent surge in gasoline prices to an U.S. average price of $3.46 per gallon for regular unleaded. But there's no shortage of oil in the U.S.
Supplies at Cushing, Okla., a major delivery and storage facility for the benchmark West Texas Intermediate crude oil, increased 1.13 million barrels this week to 38.6 million barrels, the highest level since at least 2004, when record keeping started for Cushing storage.
And U.S. gasoline consumption, although it's up 3.8% on a year-over-year basis so far in 2011, is still well below the gasoline consumption peak, reached in 2007, and the reason is obvious enough: The loss of about 8 million jobs during the Great Recession took millions of motorists off the road.
Plus, oil analyst and author Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, says the heady days of U.S. gasoline demand growth are over. He's forecasting that the nation will consume at least 20% less gasoline by 2030.
Given plentiful U.S. oil supplies and subpar gas demand, one could make the case that the spike in pump prices to near $3.50 per gallon is event-specific -- primarily due to the uprising in Libya, which has taken about 850,000 to 1 million barrels per day (bpd) of oil off the world oil market, the International Energy Agency says.
Gasoline prices could fall 30 cents to 40 cents almost as quickly as they rose, if and when Libya resumes normal oil production, which would make a U.S. driver's decision to seek a higher-MPG vehicle look premature.
Mideast Contagion Is the Concern
However, another argument says now may be a good time to start scouting for that higher-MPG vehicle because both short- and and long-term factors suggest this decade's oil environment will be decidedly different than last decade's. Seems like ancient history now, but oil traded below $25 per barrel back then.
New York University economist Nouriel "Dr. Doom" Roubini, who four years ago accurately predicted the global financial crisis, told Bloomberg News the price of oil could rise to $140 to $150 per barrel, if "troubles spread to other countries such as Bahrain and Saudi Arabia." Other estimates have put the figure over $200.
It goes without saying that any sustained disruption in oil exports by Saudi Arabia (7.32 million bpd exported) or Iran (2.5 million bpd exported) would trigger the world's third oil shock. And it's possible that prices could approach those levels solely on Cairo-size mass demonstrations in Saudi Arabia or Iran, even without a collapse of either regime.
A Lofty Floor Under Oil
Perhaps worse, the long-term factors don't suggest any big drops in oil prices. Chief among these is robust emerging-market economic growth, especially in China, India, Russia and Latin America.
In particular, China alone could be every oil company's friend: The Asian giant currently consumes 8.32 million bpd, and although its consumption is still dwarfed by the U.S. on a per-capita basis, its oil-usage growth rate is likely to be 5% to 7% in 2011, which will help put a lofty floor under oil's price.
Finally, there's the U.S. tax factor. Even excluding a special green tax designed to lower emissions, given tight fiscal budgets at the state and federal level, lawmakers are more likely to increase gasoline taxes in the immediate years ahead rather than cut them. Of course, lawmakers could always opt to raise other taxes, and skip the gas tax. But a safe bet for motorists would be to expect an additional 15 cents to 25 cents per gallon in combined state/federal gasoline taxes this decade.
A Penchant for Leaping Unexpectedly
Taken all together, these factors argue strongly for at least moderately to much higher oil prices in this decade. So, maybe now is a good time to pick out that higher-MPG car or SUV.
Of course, the unexpected can occur: Another global recession would send oil prices substantially lower. It's worth noting that during the Great Recession, crude crashed from a high of $147.27 in the summer of 2008 to below $35 per barrel in December 2009.
It's also worth noting that it then took less than six months for the price of oil to double -- skyrocketing more than 100% -- to more than $70 per barrel. And it's oil's penchant for surging unexpectedly and reeking havoc on family budgets and business expenses and disrupting whole economies that perhaps provides the strongest argument to consider that next-generation, higher-MPG vehicle today.
The periods marked by huge oil price hikes aren't called "oil shocks" for nothing.