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US consumers pay highest energy bills in decades
New York, Jul 02, 2007 -- The Christian Science Monitor
The summer heat is sweltering, so you turn up the air conditioning. The kids need a trip to the beach, but first you need to fill up the family car. And your freelance business requires that you spend a few hours on the computer tonight. "It shows up in weaker real incomes, since it results in higher rates of inflation" says Mark Zandi, chief economist at Moody's Economy.com. "If it rises much more, it will become a significant problem, particularly for lower-income households." Last week added to the misery. On Friday, the price of crude oil rang in at $70.68 a barrel, the first time in a year that it's been over $70. Just before the Fourth of July weekend, gasoline prices are about $2.96 a gallon nationally, up 11.3 cents from a year ago, or 3.9 percent higher. This is down from a peak of $3.22 set May 21. However, Mr. Zandi says Americans are now pretty well convinced that the price of gasoline will remain at about the $3-a-gallon level or higher for some time. "You can see it in their spending," he says. "To some effect, higher energy prices have offset a pretty good job market," observes the economist. "Now that consumers can't pull as much cash out of their homes, if gasoline prices rose again it would have a much more debilitating effect on them." There are already some signs consumers are stressed. Last week, the University of Michigan's surveys of consumers found that their expectations are dipping. Economist Bob Brusca of Fact and Opinion Economics points out that consumers' view of current conditions is not so bad. But he worries that consumer pessimism has now reached the same level as before the recession of 2001. We need a rebound in consumer confidence, Mr. Brusca says. Some economists are factoring in higher energy prices for the rest of the year. Last week, Lehman Brothers, in a report, said it expected energy prices to peak in the third quarter. The firm's energy analysts estimated oil prices would range from $65 to $75 a barrel this year, compared with an average of $66.11 last year. Lehman's economists said they expected higher energy prices to add about 0.5 percentage points to the broad measure of the Consumer Price Index. The investment bank said this would be a factor in keeping the Fed from lowering interest rates. To some extent, the high prices at the pump reflect the global economy and the thirst for oil. European economies are healthy with a booming demand for diesel. The Chinese economy also continues to grow at a double-digit rate. "The global GDP is about 3.5 percent, but if you weight China more, the real growth is closer to 5 percent," says Zandi. Higher GDP translates into higher energy usage. "Demand for oil continues to increase," says Antoine Halff, head of energy research at Fimat USA, a New York commodity broker. In the US, refiners are still trying to catch up from taking units out of service for maintenance and repairs from accidents. "There is a big increase in refining demand which could push crude-oil prices higher," Mr. Halff adds. In fact, energy analysts note that the futures markets have tacked on a premium of about 70 cents a barrel for oil to be delivered year-end. Analysts say that is one reason there are reports of tankers loaded with crude just loitering in the Gulf of Mexico. "Holding crude in storage is very rewarding right now," says Halff. The oil sloshing around in tankers in the Gulf indicates that there are adequate supplies of crude, says Mark Routt, an analyst at Energy Security Analysis Inc., in Wakefield, Mass. "OPEC is not increasing production," he adds. "But the market is concerned that there is not going to be enough oil in the future." Some of the concern reflects the normal angst over geopolitical developments in places such as Iran and Venezuela. In Nigeria, production continues to be disrupted by political unrest in the West Niger Delta. Even though crude oil prices could rise in price in the future, it won't necessarily mean higher gasoline prices, says Lou Pugliaresi, president of the Energy Policy Research Foundation Inc., in Washington. "We had kind of the perfect storm of bad luck," he says describing all the refinery closures. "At its peak, the gasoline price was equal to $95 a barrel for crude oil." will become a significant problem, particularly for lower-income households." Last week added to the misery. On Friday, the price of crude oil rang in at $70.68 a barrel, the first time in a year that it's been over $70. Just before the Fourth of July weekend, gasoline prices are about $2.96 a gallon nationally, up 11.3 cents from a year ago, or 3.9 percent higher. This is down from a peak of $3.22 set May 21. However, Mr. Zandi says Americans are now pretty well convinced that the price of gasoline will remain at about the $3-a-gallon level or higher for some time. "You can see it in their spending," he says. "To some effect, higher energy prices have offset a pretty good job market," observes the economist. "Now that consumers can't pull as much cash out of their homes, if gasoline prices rose again it would have a much more debilitating effect on them." There are already some signs consumers are stressed. Last week, the University of Michigan's surveys of consumers found that their expectations are dipping. Economist Bob Brusca of Fact and Opinion Economics points out that consumers' view of current conditions is not so bad. But he worries that consumer pessimism has now reached the same level as before the recession of 2001. We need a rebound in consumer confidence, Mr. Brusca says. Some economists are factoring in higher energy prices for the rest of the year. Last week, Lehman Brothers, in a report, said it expected energy prices to peak in the third quarter. The firm's energy analysts estimated oil prices would range from $65 to $75 a barrel this year, compared with an average of $66.11 last year. Lehman's economists said they expected higher energy prices to add about 0.5 percentage points to the broad measure of the Consumer Price Index. The investment bank said this would be a factor in keeping the Fed from lowering interest rates. To some extent, the high prices at the pump reflect the global economy and the thirst for oil. European economies are healthy with a booming demand for diesel. The Chinese economy also continues to grow at a double-digit rate. "The global GDP is about 3.5 percent, but if you weight China more, the real growth is closer to 5 percent," says Zandi. Higher GDP translates into higher energy usage. "Demand for oil continues to increase," says Antoine Halff, head of energy research at Fimat USA, a New York commodity broker. In the US, refiners are still trying to catch up from taking units out of service for maintenance and repairs from accidents. "There is a big increase in refining demand which could push crude-oil prices higher," Mr. Halff adds. In fact, energy analysts note that the futures markets have tacked on a premium of about 70 cents a barrel for oil to be delivered year-end. Analysts say that is one reason there are reports of tankers loaded with crude just loitering in the Gulf of Mexico. "Holding crude in storage is very rewarding right now," says Halff. The oil sloshing around in tankers in the Gulf indicates that there are adequate supplies of crude, says Mark Routt, an analyst at Energy Security Analysis Inc., in Wakefield, Mass. "OPEC is not increasing production," he adds. "But the market is concerned that there is not going to be enough oil in the future." Some of the concern reflects the normal angst over geopolitical developments in places such as Iran and Venezuela. In Nigeria, production continues to be disrupted by political unrest in the West Niger Delta. Even though crude oil prices could rise in price in the future, it won't necessarily mean higher gasoline prices, says Lou Pugliaresi, president of the Energy Policy Research Foundation Inc., in Washington. "We had kind of the perfect storm of bad luck," he says describing all the refinery closures. "At its peak, the gasoline price was equal to $95 a barrel for crude oil." News Provided By |
