Why $2 Gas Isn't The Real Energy Problem

It's easy to see why the price of gasoline is so upsetting to so many people. Gas prices are the one economic indicator you see all the time, prominently posted on big signs--and the prices are at record levels, seemingly rising by the hour. That's created a new pastime: driving around until you hit the big score, saving a nickel a gallon.

Is this a good use of your time? Not really, once you calculate how long it takes to drive around looking for a bargain and how much gas you burn doing it. If you're already at the financial brink, higher gas prices might push you over--but for most people, they ought not be that big a deal. Don't believe me? Here are the numbers. During its first five years, the average vehicle costs its owner around $725 a month, according to Edmunds.com, an automotive Web site. That includes depreciation, insurance, maintenance and such, but not gas. That averaged $1.94 a gallon last week, up 45 cents from a year ago. The average vehicle uses 550 gallons of gas annually. Do the math, and at today's price, it costs around $1,070 a year to fuel an average vehicle, up from $820. The difference: less than $25 a month. Forego the Big Gulp, hot dog and chips that you get along with your fill-up, and you'll be ahead of the game.

If you must worry, at least worry about the right thing: the way energy prices will slow down the economy if they stay at current levels. "Higher energy costs flow into every nook and cranny of the economy," says Daniel Yergin, chairman of Cambridge Energy Research Associates. Each dollar-a-barrel price hike acts like a $20 million-a-day tax--$7.3 billion a year--on the rest of the economy, with another $13 million a day for natural gas, also in short supply. Oil's up $12 a barrel in the past year, a levy that runs more than $100 billion annually. Even in an $11 trillion economy, that stings.

Unlike previous price spikes, caused by supply shortages, the current jump is caused largely by higher demand as the U.S. economy recovers, China's surges and the rest of the world's fortunes improve. That's the bad news part of the good economic news. But while supply and demand drive prices in the long term, in the short term they're heavily influenced by financial players, such as traders on the New York Mercantile Exchange. Yergin estimates that the combination of anxiety about the Middle East and financial players have added $6 to $8 a barrel to oil prices, which closed at $41.38 a barrel Friday. This means that even though world supplies are tight, oil could be knocked down to about $30.

Maybe we need some out-of-the-box thinking to dull this price spike. Sure, there's a long-term problem, requiring less demand or more supply. But for now, perhaps the Bush administration could use the 660-billion- barrel Strategic Petroleum Reserve to push prices down. One approach, suggested by Loews CEO Jim Tisch, whose company has extensive energy holdings, is to trade some reserve oil for oil to be delivered in a year. Based on Friday's prices, we could swap six barrels today for seven we'd get in 2005. That seems smarter than what we're doing: filling the reserve at today's prices. Think of it. We'd both save money and reduce current demand.

The White House isn't going for that, however. "The president believes that the Strategic Petroleum Reserve should be used only in the event of an emergency, not to manipulate prices," said White House spokesman Trent Duffy. It should be noted that Bush excoriated Bill Clinton for using the reserve to drive down heating-oil prices to help Al Gore. Sure, that was political--but not necessarily unsound economically.

OK, even if you insist on thinking inside the box, just remember that although the big picture is well worth your worry, your gas bill's not worth obsessing over. After all, at the current prices, conserving's important--even mental energy.

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