Rising oil prices have broad economic effect
Consumers pay more for gas and other goods. Investors see opportunity. Even the dollar has been affected.
NEW YORK - Jim Ammons grumbles to himself every time he fills up his Ford Expedition, but he says gas prices would have to almost quadruple to $10 a gallon before he'd ditch his SUV.
Still, paying $55 to fill his 20-gallon tank isn't easy for the Houston information specialist.
"This right here is catastrophic for a lot of families," Ammons, 54, said this week at a Chevron station that was charging $2.65 a gallon for regular unleaded. "A lot of them have to choose: Do I buy food, do I send my kids to school, or do I fill up my tank?"
The steep rise in oil prices from $69.26 a barrel in late August to near $90 means American consumers are almost certain to pay more for gasoline, heating oil, airline tickets and food, experts say. Shipping costs - especially for goods that have to be transported large distances - also will go up.
Some analysts are now predicting that oil could go as high as $120 a barrel, although they argue that underlying supply-and-demand fundamentals do not support such a spike and that a drop in prices is more likely.
What is clear is that oil has become a magnet for "hot money" - that is, speculative buying - from hedge funds and other momentum investors betting that the trend for higher prices still has a way to run.
The dollar's decline in world currency markets, which makes dollar-denominated oil futures a bargain to overseas investors, also has played a role in the recent run-up.
Gas prices usually fall sharply after Labor Day: They dropped 62 cents last year between the end of August and mid-October, for instance. But this year, prices have actually risen slightly since summer's end.
Falling prices for ethanol, a gasoline additive, and rising imports of refined gasoline, which have helped keep supplies adequate, have played a role in keeping retail prices relatively subdued. But that's not expected to last. Many analysts now say they expect prices to rise at least 10 to 15 cents a gallon, or more if oil pushes even higher.
There are signs that high fuel prices are already having an impact. The Energy Information Administration says demand for gasoline fell 0.5 percent over the last four weeks from a year ago. That reverses a trend in recent years of steadily rising demand.
The federal agency says it also expects heating oil costs to jump 22 percent this winter. Demand may slip a little, but there's only so much homeowners dependent on that fuel source can do to cut back, especially if it turns out to be an unusually cold winter. The result may be less spending on other goods and services, which could hurt economic growth.
Ultimately, higher costs trickle down to the consumer, though Bob Costello, chief economist for the American Trucking Association, said it's not easy to quantify how much. "You and I are eventually going to see something at the store," he said. "How much, there's no way for me to say."