I just about choked when I saw the new gas price on the way to work recently.
I thought $1.29 was quite sufficient for a litre of gas, thank you. Friday morning, there was more sticker shock – gas had risen to $1.32 (prices rounded to nearest cent.)
At the time, West Texas Intermediate was trading at $113 US, and Brent Crude had hit the stunning mark of $125.
Sadly, Jeff Rubin might be right. The author ofWhy Your World Is About To Get A Whole Lot Smallerhas been talking about peak oil for years. Cheap oil, he argues, has long been a driver of the global economy: from exports to vacations to the internationally sourced food on the table – you name it, it’s related to oil.
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Could triple-digit oil slam the brakes on the recovering economy? You bet, Rubin argues in a recent blog.
“Everybody from the International Monetary Fund to the International Energy Agency are warning of dire economic consequences if today’s triple digit oil prices persist,” he wrote.
So far, the high price of oil does not seem to be killing off economic growth, the phenomenon known as demand destruction. Still, how much room is there before that starts to happen?
About a year ago, I heard Anthony Perl, a professor from Simon Fraser University, deliver an analysis of how high oil prices affected the American economy during the last recession.
He argued that the subprime mortgage debacle was not the only culprit. The U.S. had set up difficult economic conditions long before that. People had moved in droves to cheaper far-flung suburbs as house prices rose. That meant filling up the truck more often just to get to work.
While families may have been able to pay higher mortgage rates, they could not keep up with the colossal gas bills. Ergo, recession. That could happen again.
Closer to the farmgate, the soaring oil price could be the biggest danger on the input side in terms of unpredictability. The Canadian Transportation Agency has already approved a 3.5 per cent increase in its volume-related composite price index.
While farmers spend less on fuel than on other inputs, it’s still a significant cost. Significant, and potentially scary in what might be a bizarre year for oil and economies.
