Oil, Man, Oil

Look, you guys know that I am very optimistic about recovery generally. You also know that I worry about oil prices. I don’t really know how else to say this, but oil prices are about to kill our chances at recovery dead. That’s all there is to it.

In the past month, the price of a barrel of oil has risen $15; it now stands at $72 per barrel. Prices have moved upward more or less steadily since hitting a bottom in February. Average gasoline prices have already risen $1 per gallon off lows hit in December. The average retail price is back above $2.60 and rising; it’s gone up about 20 cents per gallon in the past two weeks. And gas prices are on a lag; even if oil prices froze this very minute, the national average would probably get close to $3 per gallon.

This isn’t difficult to understand. If prices behave as they have for the past four months for the next month, then that’s it; recovery is cooked. If oil crosses $100 per barrel, then we’ll be lucky to see a positive growth rate in 2010.

What should the government do? I’ll tell you what they shouldn’t do — pass some bullshit cash for clunkers bill that isn’t going to make any difference, at all, in how these prices affect American households. No reason to start drilling, either; that will have approximately zero effect on current prices. Here’s what I’d do:

– Beg OPEC for more production.

– Authorize the release of substantial amounts of oil from the strategic petroleum reserve.

– Provide immediate funding to transit systems nationwide to increase service wherever possible.

– Announce an initiative to expand bus service nationwide, particularly along congested highway corridors used by commuters. Also add circulators in non-walkable business districts. Provide dedicated lanes for the service where possible.

– Announce an immediate program of substantial increases in the gas tax, to begin in 2011.

– Request economic analyses of other proposals, like salary subsidies to workers at firms which encourage telecommuting, or a temporary four-day work week.

There’s just only so much you can do in a short amount of time to minimize the impact of rising oil prices. We should have been preparing for this for some time now. Oh well.


  1. RWBoyd says:

    “- Announce an initiative to expand bus service nationwide, particularly along congested highway corridors used by commuters. Also add circulators in non-walkable business districts. Provide dedicated lanes for the service where possible.”

    How is this going to affect oil prices now? Is there a huge inventory of buses sitting around unused waiting to be put into service?

    I am not sure what I would do, but I do believe that a good part of this price increase is driven by speculation in futures markets, so I would start with investigating this and, if possible, changing the rules so that futures speculation couldn’t drastically affect oil prices.

  2. James says:

    We won’t do any of this, because we are a species of reactionary apes without the wisdom and vision necessary to put measures in place before the guano hits the fan. Obama paid lip service to our predicament with his indictment of our “shock to trance” energy habits during the campaign, yet there has not been an inkling of movement toward any of the proposals you mention.

    Beyond depressing. Almost makes me want to quit my planning gig and flee for the mountains.

  3. jim says:

    Is there a huge inventory of buses sitting around unused waiting to be put into service?

    One of the consequences of putting in BRT (which just requires money) is that by shortening the time each trip takes, you need fewer buses to maintain the same headway on a route; this means you can either reduce headway (and make the route more attractive to potential riders) or reallocate the buses to other routes.

    But it isn’t just buses.

    Railroads can increase trackage within their existing RoW fairly quickly if someone provides money, and commuter rail can use that extra trackage. At least in the DC area, commuter rail expansion is limited by the reluctance of the freight railroads to allow passenger rail to encroach on and therefore delay their revenue-providing freight. If the states had money to throw at the railroads, we could have additional commuter rail available to people being priced out of car commuting.

    DC currently owns streetcars and the rails to run them on. I don’t know what obstacles prevent DC from installing those rails and running those streetcars on them, but if we could accelerate that process, sweep away those obstacles, by the judicious application of money, it would help.

  4. BeyondDC says:

    Actually, there *is* a huge inventory of buses sitting around that could be put into service.

    1. School buses sit around empty most of the day, and all day in summer (when gas prices are highest).

    2. Most transit agencies take buses out of service after about 12 years. Many of the old out-of-service buses are held in reserve for special use if necessary. If you go to any transit agency bus yards you will most likely see some older out-of-service buses just sitting around for a rainy day.

    Of course, the buses you’ll get from those sources aren’t very good. They’re not likely to be low floor or have air conditioning or be equipped with SmarTrip readers, but those are comparatively minor problems.

    Also, new buses don’t take that long to procure. There is a lag time, but if you put in an order now you’d have it by 2010.

  5. Doug says:

    BeyondDC, that’s correct but it’s not hard to imagine that all the local rapid transit districts that have cut back service this year have railcars and busses sitting somewhere ready to fire up if subsidized to do so.

    Ryan, I’d temper a little. There seems to have been some substitution away from driving, living in the suburbs and low-mileage vehicles. All of that helped catalyze the recession, and all of that ought to help protect the economy from oil prices now. $100/bbl oil will obviously deflate the recovery but won’t necessarily stop it.

  6. I think we can do the short form and safely assume recovery is cooked.

    When gas went over $4/gallon transit ridership surged and bus ridership picked up a whopping 1-2% in transit marketshare. Double that again and you’ve still got a big fat nothing when it comes to curbing price increases by reducing demand.

    And what would recovery look like, anyway? Carpenters back at work building McMansions? Assembly lines rolling SUVs out the door?

    Even some very senior people might think so. During the Depression, the feds built 47,000 miles of highways, and Boeing started working on the first pressurized airliner. But during WW II rail travel surged and rail execs thought “Happy days are here again!” As soon as the war was over they invested hundreds of millions in shiny new passenger trains. By this time Boeing was sketching the first 707 and hardly a decade would pass before passenger rail travel was a thing of the museums, a business the railroads didn’t think they could possibly get out of soon enough.

    The real recovery will begin when Americans can choose between bicycles or streetcars to get to work, thus freeing up $500-$1000 each month of personal income, and when we get our energy from solar and wind sources, freeing ourselves from foreign energy markets.

  7. bottomofthe9th says:

    There’s really no need to beg OPEC. With 4mm b/d off the market, I’d be surprised if Venezuela and other less devoted members don’t start exceeding quotas soon.

    Just speaking more generally, I guess I really don’t see the prospect of $100 oil price in 2010–the optimism can only last so long…at some point you have to have demand growth.

    I agree that the prospect for an oil-price spike is high, given the lack of investment this year, but I think 2011 or ’12 is more likely.

  8. Karen says:

    Release oil from the strategic reserve? I don’t think we need to get hysterical. That usually aggravates any situation.

    I think it’s time we all came to terms – oil producers need $75 per barrel to remain profitable.

  9. Phil says:

    I wonder how much of this is caused by seasonality and broader economic circumstances. Retail gas prices always go up substantially in summer. Also, you’d expect oil prices to increase as economic activity picks back up again.

  10. I think we want $3/gallon gasoline. Unless there are some price signals to remind people of the problems of gasoline dependence, there will be no political will to spend money on mass transit, which is what we need to start doing ASAP.