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The oil surge ate my tax rebate

Posted by: Ben Steverman on May 21, 2008

Americans might want to save those tax rebate checks, because they’ll probably need the extra cash this summer. With the price of oil surging close to $134 per barrel, driving around town this summer could be expensive indeed.

Tony Crescenzi of Miller Tabak did the math today: The price of oil has increased $40 barrel since the federal government approved the $130 billion in rebate checks along with other economic stimulus measures in February. The U.S. uses about 20.5 million barrels a day of oil, so the total bill for oil’s price increase could add up to $300 billion over the next year. That means “the tax-rebate checks won’t go as far as they would have if not for the surge in the price of oil,” Crescenzi wrote.

To add to the trouble, gas prices often go up during the summer driving season when demand is higher. Chris Lafakis of Moody’s figures that with oil at these prices gas could conservatively cost $4.15 per gallon or as much as the “unlikely but disconcerting” $4.75 per gallon. Of course, if oil prices move toward $150 per barrel, prices at the gas pump would head even higher.

High fuel costs have a direct impact on the cash flow of companies and households, but they also have a psychological effect that other commodity prices don’t. The price of gas is posted in front of gas stations on every busy roadway in the country, and when those gas prices consistently start with “$4” or even “$5,” Americans are going to get pretty cranky.

The bottom line for investors: Except for oil drillers, the high price of oil hurts nearly every industry in the stock market. Many stocks were expecting a lift from the economic stimulus package, but that might not arrive. Instead conditions could get even worse, and the hardest hit may be consumer discretionary stocks as many American skip on luxuries this summer.

Reader Comments


May 21, 2008 7:09 PM

Its not hard to find industries helped by high oil prices. Solar & wind are the most obvious. Freight rail will gain as its much more energy efficient than long haul trucking. Passenger bus companies may gain, higher costs could well be offset by middle class riders. Companies that build public transit infrastructure will gain over the long haul as well. Basically anything that provides an alternative to oil.


May 22, 2008 11:20 AM

Brazil's oil giant Petrobras set to grow bigger with new find announed yesterday night - a new discovery in Bem-Te-vi field. Shell & Galp are partners on the BM-S8 block located in the Santos region.More yet to come...

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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