Oil: The US' Achilles' Heel
August 12, 2005
Higher oil prices mean higher gasoline prices and
I don’t think there is a country in the world with more cars
than the United States.
The US consumes about 9 million barrels of motor vehicle
gasoline per day. That equates to roughly 140 billion gallons a
year. Gasoline prices have increased from $1.50 per gallon to over
$2.30 per gallon in less than two years, and prices are still rising.
That eighty cent increase in gasoline prices means that the US will
spend over $100 billion more on gasoline this year than two years
ago, and that works out to an average of about $1,000 per household.
Some households can afford to spend an extra $1,000 a year on gasoline,
but some cannot.
The bottom line is that rising gasoline prices will
ultimately reduce consumer spending and the US economy is so dependent
on consumer spending that the rising oil price might just turn out
to be its Achilles’ Heel. 70% of US economic activity is personal
The dollar fell this week and the gold price (not
surprisingly) increased. Part of the reason for the fall in the
dollar was better-than-expected economic numbers from Europe and
an increase in capital flows to Japan. But part of the reason was
weak US retail sales figures for last month. Excluding the auto
industry that, as I described two weeks ago, is practically giving
cars away, US retail sales were very soft indeed. Excluding autos,
all other retail sales rose on average a mere 0.3% last month and
that included a 2.4% increase in gasoline sales due to higher gasoline
prices. Could the increase in gasoline prices already be taking
its toll? Sales at furniture stores fell 1.3% and sales at building
material retailers fell 0.4% despite the fact that we are still
in the midst of a roaring real estate bubble.
Here are some interesting statistics I got from the
US Census Bureau (latest figures are for 2003).
US energy production (in BTUs) did not changed from
1990 to 2003 but energy consumption increased by 16%. As a result,
US energy imports increased by 65%.
Crude oil production fell 22% from 1990 to 2003 and
crude oil imports rose by 64%.
Our dependence on foreign oil is (rightfully) a huge
I am busy reading an interesting book that you might
want to take a look at if you are interested in oil and energy markets,
or even just the future of the US economy. It is called Twilight
in the Desert by Matthew R. Simmons. Take another look at the above
statistics and keep them in mind when you read this book. Matthew
Simmons makes a case that Saudi oil production has already peaked
and that the country has limited spare capacity. It is a sobering
thought in a world that is evermore reliant on oil and energy every
Paul van Eeden
Paul van Eeden works primarily to find investments for his
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