Consumers face rise in gas prices
Instead of their usual drop, gasoline prices have risen since Labor Day.
NEW YORK (AP) — 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 information specialist.
“This right here is catastrophic for a lot of families,” Ammons, 54, said this week at a Houston 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.”
That choice may soon get a lot more difficult. The steep rise in oil prices to $90 a barrel over the past month means American consumers are almost certain to pay more for gasoline, heating oil, airline tickets and even food and goods that have to be transported great distances, experts say.
Some analysts are now predicting oil could go as high as $120 a barrel, but others 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” from hedge funds and other momentum investors betting that the trend for higher prices still has a way to run. The dollar’s decline, which makes dollar-denominated oil futures a bargain to overseas investors, also has played a role in the recent run-up.
Absent an astounding rise in prices, few economists expect high energy costs alone to push the economy into a recession, as previous oil price shocks did in the 1970s and early 1980s. That’s because the economy has become more energy efficient, and incomes have grown faster than energy costs. On a percentage basis, the country spends half the amount on energy today than it spent in 1980.
Gasoline prices now average $2.76 a gallon across the country for unleaded regular, according to the Energy Information Administration. While that’s down almost half a dollar from their May peak, pump prices are still 53 cents higher than a year ago.
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. In part, that’s because oil futures jumped 30 percent since late August, topping $90 a barrel for the first time ever Thursday.
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 expect prices to rise by at least 10 to 15 cents a gallon, or more if oil pushes even higher.
There are signs high fuel prices are already having an impact. The EIA says demand for gas fell 0.5 percent over the past four weeks from a year ago, and has been lower since Labor Day. That reverses a trend in recent years of steadily rising demand. During some weeks this summer, demand rose more than 1 percent over the previous year.
The EIA 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 ATA, 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.”