Sun, Dec 29, 2002 - Page 11 News List

Rising oil prices hit consumers

CHAIN REACTION The price of black gold has risen 27 percent since early November, impacting pump prices in the US and threatening to push transportation costs higher

NY TIMES NEWS SERVICE , NEW YORK

With crude oil prices at their highest levels in two years and showing no sign of abating soon, consumers and businesses are starting to feel the pinch as the prices of gasoline, heating oil and diesel and jet fuel begin to rise.

Industry analysts and economists warn that because of high oil prices, Americans in the coming weeks and perhaps months will most likely be paying more for nearly everything, from fuel to roofing materials to plastics. And the longer prices remain high, the greater the threat they pose to the still-tepid economic recovery, analysts and economists say.

"This would add another weight to the recovery, but not derail it," said Mark M. Zandi, chief economist at Economy.com, a consulting firm in West Chester, Pennsylvania. "But it is bad in the sense that we will be struggling to maintain growth."

The price of crude oil has risen by almost US$7, or 27 percent, since early November. In New York, crude oil for February delivery rose US$0.23 Friday, to US$32.72 a barrel, the highest since November 2000.

Analysts point out that there is a lag of several weeks between an increase in crude oil prices and a commensurate rise in the prices of petroleum products. Just this last week, however, the average retail prices of diesel fuel and gasoline rose by 4 cents, or about 3 percent, according to data collected by the Energy Information Administration, the analytical arm of the energy department.

"When crude goes up, it's just a matter of time before it hits you at the pump," said Mary Rose Brown, a spokeswoman for the Valero Energy Corp, a large independent refining company based in San Antonio, Texas.

"Our retail guys are saying that an increase of US$0.05 to US$0.10 is a reasonable expectation."

Getting costly

* The price of crude oil has risen by almost US$7, or 27 percent, since early November.

*In New York, crude oil for February delivery rose US$0.23 Friday, to US$32.72 a barrel, the highest since November 2000.

* The price of jet fuel has risen by 29 percent since August, to US$0.90 a gallon.


That might prove a conservative estimate, some traders and analysts said. The forces that are pushing up prices seem, to oil traders, to be worsening. A general strike in Venezuela against the government of President Hugo Chavez has halted nearly all oil production and reduced exports to a trickle.

Venezuela is the fourth-largest exporter of oil to the US, accounting for 14 percent of crude oil imports. Although government officials in Venezuela have vowed to restore production soon, oil traders on the global markets are skeptical, said Rick Smid, an energy futures broker at Fimat, a subsidiary of Societe Generale.

The Venezuelan shortfalls have buffeted the market as worries rise again about a possible war between the US and Iraq and its effect on oil supplies from the Persian Gulf.

For high oil prices to have a great effect on the economy, they have to be sustained for more than a month at US$30 a barrel or more, said David Costello, an energy analyst at the Energy Information Administration. The prospect seems increasingly likely, especially as both sides in the Venezuelan dispute retrench.

It takes a month or two for higher crude oil prices to work their way through the refining and retail systems and to be felt by consumers, Costello said. That explains why price increases on the retail level are only being seen now, he and other analysts said. Conversely, if the Venezuelan conflict were resolved now, it would still take several weeks for retail prices to fall, they noted.

Industries heavily reliant on oil are already feeling the bite, Zandi and others said. The makers of textiles, paper, chemicals and plastics will be stuck with higher oil bills.

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