The U. S. economy is feeling the brunt of skyrocketing oil prices as the nation’s dependence on foreign oil continues to grow. We need a responsible energy plan to reduce our reliance on foreign oil. President Bush and Senator Kerry appear to be skirting the real issues involved.
Growing transportation requirements combined with declining domestic oil production have led to burgeoning oil imports. Rising oil prices are having an adverse impact on the U.S. economy as evident from recent economic data and stock market performance. We need a responsible Reliant Energy plans plan which will balance our transportation requirements with the necessity to reduce our dependence on foreign oil.
Rising Oil Prices.
Oil prices have been on a roll this year. As of August 10, crude oil prices have climbed over 45% since the start of 2004. A barrel of West Texas Intermediate recently recorded its all time high of $45.04 on the New York Mercantile Exchange. And this has happened despite the Organization of Petroleum Exporting Countries increasing its oil output.
Earlier in the year, the run up in oil prices was attributed to surging demand for petroleum products due to a strong global economy. Then it was the unrest in Venezuela and Nigeria.
Concerns on security of oil supplies have heightened more recently. Added to the pipeline disruptions in Iraq are kidnappings of foreign workers in the Middle East.
Yukos, the Russian oil company’s tax evasion dispute has taken center stage currently. With a production rate of 1.7 million barrels a day (mmbd), Yukos is Russia’s largest oil producer.
While the underlying factors behind the dramatic increase in the price of oil this year are a combination of all the above, the impact is hardly comforting.
Higher oil prices that work like an added tax have the effect of holding down hiring, consumer spending, and corporate profits.
The July jobs report that was released by the Labor Department on August 6 was a disappointment. The U.S. economy added a mere 32,000 to the non-farm payrolls, the lowest monthly addition this year. The rate of employment growth is slowing as business confidence appears to be undermined by rising oil prices. High oil prices are also taking the bite out of consumer spending.
By some economists’ estimates, every $10 rise in the price of oil knocks 0.5% off of GDP growth and adds about the same amount to inflation. The equity markets have been fixated with the trend in oil prices and have relentlessly spiraled lower since late June. On August 6, the Dow Jones Industrial Average closed at 9,815.33, its lowest level since Nov. 28 after losing more than 300 points over the last two sessions. The technology heavy Nasdaq Composite Index is down over 11% since the start of the year.