US consumers pay highest energy bills in decades
High oil prices are dampening consumer confidence.
from the July 2, 2007 edition
Page 3 of 3
Last week, the University of Michigan's surveys of consumers found that their expectations are dipping. Economist Bob Brusca of Fact and Opinion Economics points out that consumers' view of current conditions is not so bad. But he worries that consumer pessimism has now reached the same level as before the recession of 2001. We need a rebound in consumer confidence, Mr. Brusca says.
Some economists are factoring in higher energy prices for the rest of the year. Last week, Lehman Brothers, in a report, said it expected energy prices to peak in the third quarter. The firm's energy analysts estimated oil prices would range from $65 to $75 a barrel this year, compared with an average of $66.11 last year.
Lehman's economists said they expected higher energy prices to add about 0.5 percentage points to the broad measure of the Consumer Price Index. The investment bank said this would be a factor in keeping the Fed from lowering interest rates.
To some extent, the high prices at the pump reflect the global economy and the thirst for oil. European economies are healthy with a booming demand for diesel. The Chinese economy also continues to grow at a double-digit rate. "The global GDP is about 3.5 percent, but if you weight China more, the real growth is closer to 5 percent," says Zandi.
Higher GDP translates into higher energy usage. "Demand for oil continues to increase," says Antoine Halff, head of energy research at Fimat USA, a New York commodity broker. In the US, refiners are still trying to catch up from taking units out of service for maintenance and repairs from accidents. "There is a big increase in refining demand which could push crude-oil prices higher," Mr. Halff adds.
In fact, energy analysts note that the futures markets have tacked on a premium of about 70 cents a barrel for oil to be delivered year-end. Analysts say that is one reason there are reports of tankers loaded with crude just loitering in the Gulf of Mexico. "Holding crude in storage is very rewarding right now," says Halff.
The oil sloshing around in tankers in the Gulf indicates that there are adequate supplies of crude, says Mark Routt, an analyst at Energy Security Analysis Inc., in Wakefield, Mass. "OPEC is not increasing production," he adds. "But the market is concerned that there is not going to be enough oil in the future."
Some of the concern reflects the normal angst over geopolitical developments in places such as Iran and Venezuela. In Nigeria, production continues to be disrupted by political unrest in the West Niger Delta.
Even though crude oil prices could rise in price in the future, it won't necessarily mean higher gasoline prices, says Lou Pugliaresi, president of the Energy Policy Research Foundation Inc., in Washington. "We had kind of the perfect storm of bad luck," he says describing all the refinery closures. "At its peak, the gasoline price was equal to $95 a barrel for crude oil."
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