Via Atrios, MSN's Charley Blaine looks at the price of oil and muses:
The news got lots of attention: Goldman Sachs analyst Arjun Murti predicted Tuesday that the price of crude oil could hit $150 to $200 a barrel in six to 24 months. (Here's one discussion of the report. Another is here.)
Crude oil in New York promptly jumped to as high as $122.73 a barrel in New York before closing at $121.84. And, as I write this, crude was trading slightly lower in electronic trading. But it also had the perverse effect of pushing the stock market higher. Indeed, the biggest winners in Tuesday's stock market were oil and gas production companies, natural gas companies. (But not refiners; crude oil is rising faster than refiners can push their prices up.)So, if crude jumps to $150 or $200, how does that translate into prices at the gas pump. Here's the scary part.
If crude hits $150 a barrel, we could be looking at $5 a gallon or so for the retail price of gasoline. That's based on Tuesday's $3.61-a-gallon national average and the rule of thumb that, for every $1 increase in crude oil, the pump price rises 5 cents a gallon.
If crude hits $200, the retail price of gas jumps to $7.52 a gallon. (Plus or minus a few cents) To fill the 10-gallon gas tank on my Honda Civic would cost $75.20, probably more because I live in Washington state, which has relatively high gasoline taxes.
Will there be any U.S.-based auto manufacturers left? The answer depends entirely on how fast they can transform their product lines. Chrysler is in deep trouble already. That probably means more stress for the Midwest.
Will there be any domestic airlines left? The so-called legacy airlines (American, United, Northwest, Delta and Continental) would either try to combine into one big carrier or simply disappear. They're having serious troubles surviving as it is. This means big troubles for cities where these airlines operate hubs that generate thousands of jobs like Atlanta, Cleveland, Newark, Houston, Chicago, Denver, Dallas, Memphis and Minneapolis-St. Paul.
How will big convention cities survive? Places like Las Vegas, New Orleans, Atlanta, Chicago, New York, San Francisco and Houston have thriving convention industries, all built around the capacity of airlines to transport conventioneers to and from the destinations relatively cheaply. Emphasis on the word "cheaply."
How will tourist destinations like Florida or Hawaii cope? Add to that places like, say, Williamstown, Mass., whose Williamstown Theater Festival is a big draw, or Ashland, Ore., home of the Oregon Shakespeare Festival. They're not close to major cities.
There is an almost perfect storm of bad economic news brewing, and the mortgage mess is really only a small indication of what is to come. The era of cheap oil is ending, assuming of course that it is not already over. The 1970s gave us an early warning, a chance to act and minimize the eventual pain, but it was a warning we chose to almost wholly ignore. Rather than plan for an inevitable yet still distant future, we chose instead to do nothing, doubling down knowing fully that it was future generations who would cover our losses should the magical markets not produce ponies for everyone to ride.
It's our mess, and we've no choice now but to clean it up. I do hope the Baby Boomers enjoyed their party. Because this hangover is really gonna hurt.
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