Energy

America Braces For $380 Oil

Douglas A. McIntyre

Published: July 2, 2022 12:18 pm

Oil prices, at just above $100 a barrel, have driving gas prices above $5 based on a gallon of regular nationwide. In some states, the number is closer to $6 a gallon.

Oil prices also affect other parts of the economy. Jet fuel price spikes have cut into airline profits. Oil is used in petrochemicals which are used throughout many parts of America’s manufacturing industries.

High gas prices have started to beat down the ability of Americans to make purchases beyond their housing prices, clothing prices and fuel. Since consumer activity is over two-thirds of GDP, the entire U.S. economy is at risk of a recession, which may have already begun.

A family with an income of $40,000 probably does not have after tax income of more than $2,500 a month. Gas price increases can add a burden of several hundred dollars a month.

JP Morgan energy analysts recently reported that crude could reach $380 a barrel. This would be triggered by a sharp curtailment of Russian exports. And, in turn, this would be caused by the friction between the West and Russia over the war in Ukraine. Bloomberg reported on the research which forecasts Russia could cut five million barrels of production a day without crippling its own economy.

Gas prices primarily rely on oil prices. Other components include refinery costs, transportation, and state and federal taxes. President Biden and some state governors have suggested a temporary suspension of these taxes would help consumers.

Oil prices at $380 would push gas prices above $10 a gallon, and perhaps toward $15. The U.S. economy could not take the shock, and whatever recession might be ahead would deepen. The problem in Europe could be close to identical.

Americans have to pray that JP Morgan is wrong.