Wednesday, January 11, 2012

Alarms Blaring: 2011 Oil Price Sets Triple Digit Record For Full Year

The price signal coming from global oil markets has never been more foreboding, and the economic, national security reasons to move to oil substitutes like electricity for vehicles, natural gas, and biofuels have never been more compelling.

For the first time in history, as measured by the Brent price index averaged, global oil prices averaged for a full year triple digits--$111, according to EIA data. Never before had global oil prices averaged more than $100. See www.eia.gov/todayinenergy/detail.cfm?id=4490.

These sustained, record high prices are less shocking than the price spike to $147 per barrel in July 2008 but they cause more damage to the economy.  Oil remains the number 1 fuel powering America, supplying about one-third of our total energy.  At current levels of oil use, high oil prices decrease GDP growth. A rule of thumb is that, when oil prices are $125 or higher, economic damage done is substantial and can tip the US into recession if other energy prices are following oil.

Fortunately, in 2011, the number 2 fuel powering America--natural gas that supplies about 24% of our total energy--dropped substantially in price.  The natural gas price drop and booming renewable energy supplies led to lower electricity prices in many parts of the country, even though coal prices delivered to electricity utilities increased by 6%.

The combination of lower natural gas prices and lower electricity bills created a continuing stimulus for the economy and prevented a broad energy shock that could have derailed the economic recovery that began in July 2009.

Yet, the oil wolf is very much at the door of America's economic house, especially given the possibility of conflict with Iran during 2012.  Using oil efficiently with steps like raising Corporate Average Fuel Economy standards and moving to oil substitutes must accelerate in 2012 and beyond to tame the oil wolf.

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