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."
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.
"It will affect airlines and trucking significantly," Zandi said. "The airlines are already hard-pressed, and this is one more thing to push them under water."
The price of jet fuel has risen by 29 percent since August, to US$0.90 a gallon.
The region that relies most heavily on heating oil, the Northeast, may also face sharply higher prices, Zandi and others said. Heating oil prices are 18 percent higher than they were a year ago, according to the Energy Information Administration.
"New York City will be hit very hard," Zandi predicted, "much more than a place like Dallas or Southern California."
The effect of higher oil prices may ripple through industries that, at first glance, seem remote from oil. Consider roofing. The best asphalt for roofing comes from "heavy" crude oil produced in Venezuela. With those supplies gone, "people are scrambling already to find supplies," Brown of Valero said. "The cost of roofing will go up."
If the conflict in Venezuela were resolved and striking workers from the state oil company returned to their jobs, that would certainly bring more crude oil into the market and gradually deflate high prices. But few people believe such an outcome is likely anytime soon.
Instead, industry experts look to the OPEC, of which Venezuela is a member. Other members said at a meeting earlier this month that the group would make up for shortfalls of Venezuelan exports if the strike continued.
OPEC members like Saudi Arabia and Kuwait are among the few countries in the world that have the spare production capacity to bring on stream to replace the Venezuelan oil. But it remains uncertain what steps OPEC has taken. Moreover, it takes about 40 days for oil to be shipped from the Persian Gulf to the US, which may mean that oil supplies in the Western Hemisphere may only be replenished later in January.
"The key thing now is how quickly and on what scale the other OPEC producers step up their production," said Daniel Yergin, the chairman of Cambridge Energy Research Associates, "and that will determine in a week or 10 days where oil prices will be.
"You could have replacement supplies in late January from the Persian Gulf. But all of that assumes that nothing happens anywhere else."
* 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.
HEAVY INVESTMENT: Moody’s affirmed the firm’s ‘Aa3’ rating with a ‘stable’ outlook due to its leading position in the industry and ability to match customer requirements Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) revenue this year is expected to increase about 21 percent to NT$1.29 trillion (US$44.01 billion) from NT$1.07 trillion last year, driven by strong demand for advanced 5-nanometer and 7-nanometer chips mainly used in smartphones and high-performance computing devices, a Moody’s Investors Service report on Wednesday said. TSMC’s rate of revenue growth next year is to increase to 7.5 percent, the ratings agency said. The company, which supplies 5-nanometer chips for Apple Inc’s new iPad series, has introduced the advanced chips ahead of its competitors and gained a significant share of the market for the foundry industry’s
Shin Kong Financial Holding Co (新光金控) yesterday said that its insurance unit would adjust its investment portfolio after being banned from buying new stocks a day earlier by the Financial Supervisory Commission (FSC). “We will research what we can do based on the commission’s specific instructions after we receive the regulator’s formal documents,” Shin Kong Financial spokesman Sunny Hsu (徐順鋆) told the Taipei Times by telephone. The commission on Tuesday fined Shin Kong Life Insurance Co (新光人壽) NT$27.6 million (US$941,722) for reckless investment, and demanded that the insurer reduce its overseas investment ratio from 43 percent to 39 percent. The fine would affect
Taipei Times: When do you think the hospitality industry can return to how it was before the COVID-19 pandemic? How does Formosa International Hotels Group (FIH, 晶華酒店集團) fare this quarter and beyond? FIH chairman Steve Pan (潘思亮): The virus outbreak will have a serious impact on business travel, driven mainly by meetings, incentive travel, conferences and exhibitions over the past three decades. For the past six months, many businesspeople have grown used to exchanging information on the Internet, where more people can participate. The trend might sustain for three to five years until people are vaccinated and it is safe to
EQUITIES TAIEX moves sharply higher The TAIEX moved sharply higher yesterday as buying focused on Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) after a strong showing by its American Depositary Receipts overnight. However, the gains were capped after the benchmark index breached 13,000 points and ran into technical hurdles, prompting investors to turn cautious, dealers said. At the end of the session, the TAIEX was up 131.11 points, or 1.02 percent, at 12,976.76. Turnover was NT$206.328 billion (US$7.04 billion), with foreign institutional investors buying a net NT$18.47 billion in shares, Taiwan Stock Exchange data showed. TSMC rose 2.92 percent to close at NT$458.