Tags: Oil Prices

Oil's Surge Felt by Drivers, Fliers and Shoppers

Friday, 04 March 2011 07:15 AM

The recent surge in oil prices is forcing sharp increases in gasoline and other fuels that could cascade throughout the U.S. economy for months to come.

Pump prices, which are already the highest ever for early March, jumped another 4 cents Thursday. The national average is $3.43 per gallon, according to AAA, Wright Express and Oil Price Information Service.

Airlines, shipping companies and gas station owners were bracing for fuel prices to rise this year, though not this fast. Prices shot up sooner than expected as unrest in the Middle East and Northern Africa brought concerns that supplies could be disrupted from a region that exports a quarter of the world's oil.

The price of oil has risen 21 percent since Feb. 15, when Libyan protestors began clashing with the government. Libya controls the largest oil reserves in Africa. The U.S. imports only a tiny amount of oil from Libya, but it's still affected by the spike in oil.

Americans are now paying 29 cents more for a gallon of gas than when the Libyan crisis started, an increase of about 10 percent. That means an extra $108 million a day goes towards gas instead of other discretionary purchases.

"This just hurts," said Lucina Chavez, whose BMW burns $200 of gasoline per month as she commutes from the suburbs to a job at a nonprofit in Phoenix. Chavez is considering carpooling or moving closer to downtown.

"It would almost be cheaper to get a hotel," she said.

Analyst and trader Stephen Schork said gasoline could rise another 32 cents per gallon this spring and peak as high as $3.80 by summer.

Consumers will feel the pinch beyond the gas pump. Food merchants, airlines, shipping companies and other businesses will likely try to pass along higher costs.

Retail consultant John Haber said online florists, pizza delivery companies, trash collectors, cruise lines and taxi drivers raised rates in 2008 as gasoline and diesel jumped above $4 per gallon. The rise in oil this year "is going to trigger the exact same type of behavior," said Haber, a partner at NPI. Diesel fuel, used by truckers, railroads and cruise ships, is up to $3.78 per gallon.

Already, the impact can be seen at the grocery store, where consumers buy lettuce, onions, strawberries, avocados, eggplant, and other produce shipped from Mexico and California, Haber said.

Ken Perkins, president of RetailMetrics, said that if gas hits $4, shoppers will change their habits. They'll cut back on discretionary purchases and make fewer trips to the mall.

Prices could even increase for small businesses. Kathy Burr, owner of the Espresso Yourself coffee shop in Iowa, drives 30 miles into Des Moines for the majority of her supplies. If filling up costs her more it's "going to cause raising prices here which I hate to do," Buhr said.

Even if oil prices drop soon, shipping costs could rise for months. Fuel surcharges applied by freight carriers like truckers, railroads and package delivery companies like FedEx and UPS lag the actual price of fuel by as much as 60 days. So they have yet to price in the recent spike in fuel.

Flying is already more expensive. Jet fuel prices have risen about 13 percent in two weeks and are now up 46 percent from a year ago.

In turn, U.S. airlines have raised fares six times this year, the latest a $10 round-trip increase on Thursday. Last month airlines added fuel surcharges to domestic tickets, something they hadn't done since 2008. Those surcharges, now only between $3 and $5, are expected to increase swiftly in tandem with fuel prices.

American Airlines and Delta Air Lines have already trimmed back plans to fly more passengers this year. That means travelers will see fewer available flights and more crowded planes this spring and summer.

Oil prices retreated Thursday from two-year highs set a day before. Benchmark West Texas Intermediate for April delivery fell 32 cents to settle at $101.91 per barrel on the Nymex.

Oil traders say they've mostly priced in the loss of Libyan production — about 1.6 million barrels per day — but the so-called "fear premium" in the price of a barrel could rise further if similar pro-reform movements escalate in neighboring countries such as Algeria, Iran and Saudi Arabia.

In other Nymex trading for April contracts, heating oil fell less than a penny to settle at $3.049 per gallon and gasoline futures lost less than a penny to settle at $3.026 per gallon. Natural gas gave up 4 cents to settle at $3.778 per 1,000 cubic feet.

In London, Brent crude fell $1.56 to settle at $114.79 per barrel.

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The recent surge in oil prices is forcing sharp increases in gasoline and other fuels that could cascade throughout the U.S. economy for months to come.Pump prices, which are already the highest ever for early March, jumped another 4 cents Thursday. The national average is...
Oil Prices
Friday, 04 March 2011 07:15 AM
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