WSJ: $100 Oil Could Reshape Global Economy

Expensive gasoline has pulled the rug out from under Detroit's 'bigger is better' business model, as well as tougher fuel-efficiency standards and other tactics to discourage car use.

Published: 04-Jan-2008

With the trade of a single contract, the price of oil touched $100 a barrel for the first time on Wednesday. Crude was trading at $10 a barrel only ten years ago, and its continuing surge "is altering the wealth and influence of nations and industries around the world," the Wall Street Journal reports.

Following the $100 trade, oil futures settled at $99.62 on the New York Merc -- their highest close ever in nominal terms, and just a hair behind the inflation-adjusted record of $102.81 set in April 1980. As the Journal's Marketbeat blog noted, the trader of that contract "had a Zelig-like presence in all of the markets...as the price of gold breached $850 an ounce, the 10-year bond dropped below 4.00%, the dollar fell below 110 yen, and the Dow industrials briefly traded below 13000." "Put your seatbelt on and get ready for a rocky ride," said Jennifer Ellison, principal at wealth management firm Bingham, Osborn & Scarborough. "The volatility is most likely going to continue."

Steep oil prices are affecting lower-income commuters in the U.S., who are having a harder time as fuel prices take a bigger bite out of their paychecks. "If oil stays at the price it’s at, you could see gasoline prices at $3.60 or $4 a gallon, which is absolutely frightening," said Paul Ashworth, senior U.S. economist at Capital Economics, quoted in the Journal's Real Time Economics blog. "It’s going to have a fairly devastating impact." American auto manufacturers are now facing demands for tougher fuel-efficiency standards and other tactics to discourage car use. Advocates for the prevention of global warming have found new allies among conservatives who want to reduce American dependence on foreign oil. Expensive gasoline has pulled the rug out from under Detroit's "bigger is better" business model: 428,000 Ford Explorer SUVs were sold in 2001 and 126,930 in 2007. Airlines, too, have raised fares and cut costs to compensate for high fuel expenses. They will likely continue both trends as well as reduce or cut less profitable routes.

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