Economic Recovery Forecast Requires a Closer Look at Our Dependence on Oil

According to an Associated Press Survey released yesterday a sharp rise in oil prices is the only potential threat to our economic recovery.

"'The economy is regaining some of its lost muscle and now seems to have a much thicker skin than it did six months or a year ago, and that's helping it handle various negative forces,' said Lynn Reaser, a board member of the National Association for Business Economics."

According to the article oil is trading at $112 a barrel now. A jump to $150 a barrel would be enough to cause another recession.

"Analysts think it would take something extraordinary to drive the price all the way to a new record - either supply disruptions because of a new front in the Mideast unrest or action by the Federal Reserve that brings down the value of the dollar."

What about future risk?

According to BP's annual report (2009 is the year for which data is available) the US holds 2.1% of the world proven reserves of oil. OPEC (Organization of the Petroleum Exporting Countries) controls 77.2% of  world oil reserves and has a significant influence on global market prices.

Deep water wells, Tar sands, and Shale oil are all options that depend upon high oil prices to pay for the engineering, infrastructure and environmental mitigations associated with oil production. The increasing demand in China and India for oil (representing 36% of the world population) will also push oil prices up.

When it takes more energy to obtain oil than the energy oil can provide it no longer makes good business sense to use oil as a source of energy.

Today economists say it will take a major disruption to spur a jump in oil prices, but long term a dependence on oil will come with a higher price tag and the associated economic risk.

Conservation and renewable energy is necessary for long-term economic health and stability in the US.