Image: washingtonpost.com

The latest chapter in the saga of the still-unfolding American economic downturn is the bailout (or non-bailout) of the “big three” auto manufacturers: Ford, Chrysler, and General Motors. Two of the three (Chrysler and GM) have indicated that they require loans or other financial assistance by the end of 2008 to avoid complete economic collapse. Ford has said it also needs economic help, though its collapse is less imminent.

Late last night, the House of Representatives passed a bill on a 237 to 170 vote that could be seen as the first step toward a full-scale bailout, approving a “stop-gap” loan of $15 billion to the two more-troubled companies that would ensure their survival through March of 2009. Although the bill still faces tough Republican opposition in the Senate, “the market knows that [the bailout] is going to happen in one shape or another,” said Peter Cardillo, chief market economist at Avalon Partners, quoted on MarketWatch.com. The news of the bill’s passage helped to boost the price of crude on NYMEX today, according to CNNMoney.com, primarily because the failure of the big three would deal a huge blow to the already-floundering U.S. economy. Less damage to the economy means a swifter recovery and a quicker return of oil demand, which has recently sunk to its lowest level in decades. Also, a recovering auto industry would directly increase demand for oil in the U.S., as it is a major part of the country’s manufacturing sector–manufacturing requires huge amounts of oil to operate machinery; crude oil is also a key ingredient in plastics and other raw materials, so increased demand will trickle down from the auto industry to other manufacturing sectors as well.

President-elect Obama (who has signaled support for the auto industry bailout) and the economic recovery plan he announced last weekend (covered on the Monday morning’s HEAT Zone post) have also helped to stimulate the economy lately, sending oil prices up along with the stock market on Monday. If Obama successfully implements his plan, stimulating job growth and kick-starting U.S. manufacturing, it could, in combination with a revived auto industry, but the antidote that brings the American economy back to life. Of course, expedient economic recovery would be a positive for all Americans, but it could also bring about a less-popular effect much sooner than anticipated: a return high oil prices.

After days of negotiations and hours of heated debate, the US House of Representatives rejected the financial bailout bill by a vote of 228 to 205.  The bill, championed by the Bush Administration as a necessary fix for the nation’s struggling economy, would have led to the $700 billion purchase of debt products from failed or failing financial institutions.

The news of the bill’s failure had an immediate effect on already-slipping stock and commodities markets: the Dow Jones fell 6.98% and crude oil fell almost $11 (a 10% decline) to just over $96 a barrel at close.

Dismayed members of Congress offered comments that mirrored the market news: the bill’s failure only worsened the economic crisis.  “Today is the decision day. If we defeat this bill today, it will be a very bad day for the financial sector of the American economy and the people who will feel the pain are not the top bankers and top corporate executives but average Americans,” said Barney Frank (D-MA) in an article on CNNmoney.com.

As previously reported on The Heat Zone, the slowing national economy is bad news for the nation as a whole, but there is a silver lining: the situation will most likely continue to drive down the price of heating oil.

This summer two separate bills, H.R. 6321 and H.R. 6473, were introduced to the House of Representatives. Both bills, if they became law, would provide relief from high energy prices and supply problems for residents of the Northeast.

H.R. 6321 (also called the “HEATR bill of 2008″), introduced by Rep. John McHugh (R-NY), would provide a tax credit to individuals and families to the tune of $500 or 33% of one year’s energy costs. The credit would be limited to households making less than $100,000 per year.

H.R. 6473, introduced by Rep. Paul Hoades (D-NH) would require the Secretary of Energy to sell off heating oil from the Northeast Home Heating Oil Reserve under specific circumstances: (1) if a major disruption in energy supply occurs, and (2) if the retail price of heating oil reaches $4.00 per gallon

Both of these bills are still in the first phase (”introduction”) of the legislative process, and may not even move beyond the committee phase to be voted on by congress. If one or both of the bills did become law, however, they would form a nice safety net under HEAT USA members and others who rely on heating oil to keep warm during the winter. The Heat Zone will keep track of both bills when and if they move through the legislative process.