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Published March 12, 2008 10:09 PM

HIGH PRICED CRUDE : SCOUNDREL OR SAVIOR?

It’s not just the subprime mortgage market that’s damaging the US, and perhaps global economies. It’s the relentless rise in the price of oil. And, $100 plus oil may be more the result of speculative greed than fundamentals like tight supplies or demand from growing nations.

But there’s a bright side: High prices at the pump could force more drivers to conserve, to drive something less thirsty or shift away from petroleum altogether. High priced oil could help save the planet.

Frost and Sullivan, which describes itself as the Global Growth Consulting Company, thinks that fear is driving the recessionary trend in the US. At its core the country’s economy is still solid and a recession is not inevitable, but may turn into a self-fulfilling prophecy, the company says.

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The basis for recessionary fears - the subprime mortgage crisis - shouldn’t be enough to damage the economy, the London based, globally operating company says.

“CEOs tightening their economic belt and implementing cautionary growth strategies, and consumers spending more conservatively will fundamentally cause any real slowdown or recession we may experience,” states Frost & Sullivan Chairman David Frigstad. “The problem is a spiral effect driven by fear. A fear-based climate is causing consumers to lose confidence and cut back on their spending, banks will tighten their credit policies and turn a false perception of doom and gloom into reality, thus driving the economy into recession.”

Yet if the subprime crisis isn’t enough to do in an economy, partnering in crime with high oil prices could. Already the effect of high oil is reflected throughout the global economy in anything from airline tickets to prices on grocery store shelves. And it’s not just the cost of a gallon of milk that’s a concern it’s the petrodollars that are leaving the US that should be a concern.

According to preliminary accounting by Petroleum Intelligence Weekly the tab in 2007 for importing crude oil and crude oil products (like gasoline) came to about $327 billion.

This year, 2008, is on track to be a record setter as well. Already oil is selling at about 30 percent more than the 2007 average, and consumption is still strong despite slightly slower sales due to better efficiency. Using a $90 per barrel average, the total tab for imports could be as much as $440 billion by year’s end.

If that $440 billion stayed at home what could it buy? At about $25,000 apiece $440 billion would buy 17.6 million well equipped Toyota Prius hybrids. Or 8.8 million $50,000 a year jobs. Or 330,000 megawatts of nameplate wind energy capacity based on a price per megawatt using a recent sale of 750 megawatts of GE wind turbines to Invenergy for about a $1 billion.

But, the publication says, don’t be alarmed that all $440 billion will be going into the treasuries of nations that don’t like the US very much. Friendly neighbors to the North and south, Canada and Mexico, supply the US with about a third of our crude imports. Still, $440 billion is a lot of money especially when there’s little tangible received directly in return.

It is probable that the high cost of a barrel of oil is part of an oil bubble, like the real estate bubble, or the dot com bubble, that will eventually burst. Investors, including traders in the commodities markets that set the price of oil, continually look for profit-making opportunities. When the dot coms failed investors and speculators turned to real estate. When that failed they took bets on oil, where we now are.

OilWatchdog.org, a project of the Foundation for Taxpayer and Consumer Rights (FTCR), is calling for Congress and President Bush to take joint action against oil speculators.

"There is no shortage of gasoline, no shortage of crude oil, no underlying market reason for these excruciating record prices," said Judy Dugan, research director of OilWatchdog and the nonprofit, nonpartisan FTCR. "Speculators and hedge funds, today's Enron rogues, are driving an economic disaster by pouring billions into bets on continually rising prices."

"The electronic energy trading markets, including the InterContinental Exchange, are exempt from all regulation because of what's called the 'Enron Loophole," said Dugan. "The same energy bandits who nearly turned out the lights in California in 2000 pushed aside federal regulation that could have spotted manipulation and curbed this year's disastrous price spike. Government is still asleep at the wheel."

Because of the high cost of oil some refineries are cutting back production which leads to higher prices at the pump, the group says, compounding with high prices elsewhere in the economy, and high consumer debt.

Those who win as the result of oil speculation are the oil companies that pump their own oil and refine it too, the oil rich nations that sell oil at prices determined in a marketplace beyond their borders, those commodities speculators themselves, and the global environment if oil is shunned for alternatives.

The losers in high oil are consumers and industry not in the oil business. The winners and losers would be reversed if the price of oil were to plummet.

The best scenario would be for investors to shift from oil to investments in alternatives and energy efficiency, even if it were to create a green bubble. The White House, and all the presidential candidates would like the same.

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