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Get Four
|  | SEPTEMBER 29, 2004
By Amey Stone $50 Oil: A Spreading Slick of Pain With crude prices finally crossing that line, and promising to stay lofty, here's how it affects the economy -- and you The long-anticipated moment finally arrived -- oil reached $50 a barrel. Light, sweet crude that's traded on the New York Mercantile Exchange had previously peaked at $49 in mid-August before falling back to around $44 through the first half of September. But when Hurricane Ivan roared through the Gulf of Mexico and new worries about production in Venezuela and Nigeria cropped up, oil marched back up and on Sept. 28 crossed into $50 territory. Brace yourself. Even if crude slips back from the $50 milestone (light, sweet crude for November delivery closed at $49.51 on Sept. 29), high-priced oil isn't going away. And the pain in your pocketbook may be just starting. The problem isn't just higher gasoline prices -- although that's where consumers have felt the impact first. Oil's jump affects the entire U.S. economy and has already contributed to a summer slowdown in growth, a weaker-than-hoped-for job market, and a slide in consumer confidence. Eventually, if companies pass along higher energy costs, pricier oil could lead to inflation, although that hasn't happened yet. Depressing as it is, when you take a broad view of the problem you see the many ways costlier energy can cut into your cash flow -- even if you haven't suffered much from higher prices at the gas pump. Here's how $50 crude could hit you in your pocketbook: Higher Gasoline Prices. As the last few months have shown, prices at the pump don't move in lockstep with crude. Thankfully, that meant gas prices didn't keep rising in July and August as crude peaked. Instead, gasoline hit its high in May at a national average of $2.05 a gallon for regular unleaded, according to AAA's Fuel Gauge Report. As gasoline inventories rose during the summer, the national average price fell back to around $1.85 until recently. But it renewed its ascent recently on the current oil spike. The Energy Information Administration (EIA) predicted in a Sept. 8 report that prices would fall as low $1.80 by yearend, thanks to high inventories of gasoline. But many experts don't believe it. Mark Baxter, director of the Maguire Energy Institute at SMU's Cox School of Business in Dallas, thinks gas will climb to $2.10 or $2.15 a gallon. That compares to a 2003 average price of $1.57 and a 2002 average of $1.40. "I still believe it will head north another 20 to 25 cents," he says. "That would truly reflect crude at $50 barrel." For a family that drives two cars approximately 15,000 miles a year, that would amount to an extra $650 or so in gasoline costs in 2004, vs. those for 2003. Many families are hit much harder, for example, if they drive long distances for work or have old or gas-guzzling vehicles, points out Susan Fulton, a principal of investment-management firm WealthTrust in Bethesda, Md. She believes lower-income families are disproportionately hurt while upper-income Americans may hardly feel the pinch. "That is the terrible truth of it," Fulton says. Costlier Home-Heating Oil. Gasoline isn't the only crude oil derivative purchased by many Americans. The EIA forecasts that the average price for a gallon of home heating oil will rise to $1.50 from $1.36, for a total average expenditure of $1,048, up from $991 last year. An extra $57 isn't much of a hardship, but if the winter is particularly cold or you have a large, drafty house, expect a price increase a much steeper hit.
BW MALL
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