California gas prices in March 2011For most Americans, cars aren't simply a way of getting around -- they're a reflection of people's personality.

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.

Falling Consumption

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.

In the short term, while the Libyan crisis will likely be resolved at some point, a wave of heightened social and political unrest is sweeping through the Arab world and particularly the Persian Gulf region. Major oil-exporting countries Saudi Arabia and Iran have not, so far, seen similar protests and popular movements that could threaten their regimes. But contagion is only going to be a growing concern, and it's primarily that factor -- not Libya's slashed output -- that's behind oil's leap above $100 per barrel.

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.

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If the gas prices are going to stay high, why not get some of that money back? Try joining a gas rebate club to help save money on gas. GO here:

June 10 2011 at 9:22 PM Report abuse rate up rate down Reply

The talk is going around about putting a gas tax on the gasoline we use. This tax will fall unfairly on the poor and middle class as a percentage of income. This is crazy talk and should not happen. Our military consumes approx. 50% of the oil used in this country. Further, if a gas tax goes into effect than the price of every other item that has to travel by truck/airplane, etc. will also increase. Watch the cost of our food increase. Also, seeing what the government has done with the Social Security Trust Fund (they have used for other expenses approx. 2.5 Trillion) can they be trusted with a fund to be used for the purpose for which a gas tax is intended or will the money raised be diverted to other expenditures like war, tax cuts, etc.? Europe provides their citizens with health care, education and other benefits with their taxes raised.

March 07 2011 at 3:24 PM Report abuse +1 rate up rate down Reply

Since there is no shortage of oil, the rise in prices is due to speculation in the oil futures market in my opinion. Instead of talk about adding a tax to a gallon of gasoline, why not add at least a transaction tax to commodity traders? Perhaps it would cut down on pure speculation and greed. We hear the same oil traders taking about the shortage of oil driving up the price but no one is mentioning Iraq where they are producing as much oil as they were approx. 20 years ago. Now it appears there is oil off the coast of Cuba. BTW, Europe has high taxes on their gasoline but no one seems to mention how they pay for benefits like health care, etc. with their taxes. It appears the big wigs want to keep the people in the U.S. uninformed and with blinders.

March 07 2011 at 3:11 PM Report abuse rate up rate down Reply


March 07 2011 at 11:41 AM Report abuse rate up rate down Reply
2 replies to bhawkes328's comment

16,18, 19 cents, best I can recall is $1.75. 16 to 19 must of been in the late 40s early 50s.

March 07 2011 at 12:36 PM Report abuse +1 rate up rate down Reply

tjdwill2dot6 : if you remember 18 or 19 cents you must be older that dirt.

March 07 2011 at 12:52 PM Report abuse +1 rate up rate down Reply

Want to be a "MINUTEMAN" patriot? Simply drive slower taking an extra minute to get where you are going, the gas savings will cause prices to drop like a rock. Spread it around ! National DRIVE SLOW Month is now ! Be a patriot , save your grandchildren from economic slavery!

March 07 2011 at 11:35 AM Report abuse +1 rate up rate down Reply

Stocks Rally on Robust Jobs and Retail Reports An unexpected drop in new claims for jobless benefits and higher February retail sales propelled stocks higher. Also bolstering the bulls was the ISM's report that hiring among service companies rose to the highest level since April 2006. THANK YOU PRESIDENT OBAMA. OBAMA 2012 , the man who saved this nation

See full article from DailyFinance:

March 07 2011 at 11:07 AM Report abuse rate up rate down Reply

Josesph , doesnt the recent collapse of real estate prices give enough reason to switch to fuel efficient cars new or used. . America is on a cocaine binge like addictoin!!

March 07 2011 at 10:50 AM Report abuse -1 rate up rate down Reply

Truth is : Clinton presided over a doubling of gas prices, then Bush w did the same. They both dropped the ball, the electric car ball that is! Our electric car gets 100 miles for about $2. If only 1 % of Americans had this car , gas would drop to 35 cents a gallon. In fact when Nixon instituted 55 mph it dropped the price of oil over the next 5 years to a proper and correct market of $8/barrel. LESSON: DRIVE SLOWER.. It will save you MONEY $$, it will force down prices, force the rich to also drive slower, reduce pollution, and SAVE LIVES !

See full article from DailyFinance:

March 07 2011 at 10:06 AM Report abuse rate up rate down Reply

Again realize we did these tests ourselves: _________ For a standard minivan driving 70 mph <===> 22MPG ,.. 45 mph <====> 31 MPG ,.. 35Mph <====> 41MPG Thats how Nixon and the 55 mph national speed limit got the leaches off our backs before.. If obama won't do it for us we can simply DRIVE SLOWER ourselves with similar effect.. plus you save the economy, lives, environment (1000 species extinct every year due to carbons), also you force the oil mongers to drive slower also. DRIVING SLOWER IS PATRIOTIC! Vote with your gas pedal! NATIONAL DRIVE SLOW MONTH IS NOW ! Spread it around! Watch the gas prices drop like a rock !

March 07 2011 at 9:47 AM Report abuse rate up rate down Reply

$110.a barrel by the Friday close taken bets

March 07 2011 at 9:21 AM Report abuse rate up rate down Reply