Gas price spike pumping up fears
Comments (...)(MCT) — The unseasonably warm weather isn't the only sign of an early spring. Roiled by the specter of Iranian oil cutoffs, gas prices are rising at a record pace, crossing the $4-a-gallon threshold in some parts of the country, and threatening to break an all-time high, experts say.
Fears of $5 per gallon gasoline are in the back of some motorists' minds, jeopardizing the nascent economic recovery and fueling campaign rhetoric during a presidential election year.
"Everybody was worried about Europe as being the precipitating factor to sort of throw the world into a slowdown," said Tom Kloza, chief oil analyst at Oil Price Information Service. "Higher oil prices could do that too."
Creeping up steadily over the last month, the national average for a gallon of regular hit $3.57 Monday — up from $3.17 a year ago, according to AAA. Prices typically rise in the spring across the country, as suppliers introduce a warm-weather fuel blend that burns cleaner and costs more money.
Kloza is predicting a national average of $4 to $4.25 per gallon by April, which would increase the chances of hitting a record high. The all-time high nationally was in July 2008, when an average gallon of regular unleaded sold for $4.11.
In the Chicago area — home to gas prices that traditionally are among the highest in the nation — prices are up from last year at this time, when the area was headed toward a local record of $4.47 per gallon in May. But prices have dropped 10 cents a gallon in the last month to $3.54 per gallon — falling below the national average. It's an unusual trend that may continue going forward.
"We're the anomaly right now," said Beth Mosher, AAA Chicago spokeswoman.
The Midwest's supply comes mostly from Canada and the Southwest, which is pegged to the price of West Texas Intermediate crude oil. There is a surplus of North American oil that could keep prices down for up to a year, analysts said.
Still, the prices are high enough for many drivers throughout the Chicago area.
A delivery driver for Budweiser, Brian Thomas, 42, of Waukegan, commutes more than 60 miles a day for his job in Arlington Heights. Thomas, who has been juggling his bills to make ends meet, tries to buy gas in Lake County, where, he says, it's about 10 to 15 cents cheaper per gallon. But with his tank near empty Monday, he reluctantly filled up at a Speedway in Des Plaines. "It's very tough because you have to make these tough decisions to make it to work," Thomas said.
Prices are much higher on the East and West coasts, where imported fuel is tied to Brent crude, the European benchmark directly affected by Iran and other Middle Eastern suppliers.
International sanctions on Iran over its nuclear program have led to threats that Iran would stop oil shipments to Europe and developing nations. Those threats have contributed to steady increases at the pump this year. The move by Iran on Sunday to cut off its supply to Britain and France may have been priced in, some analysts said.
"When people talk about $5 (per) gallon, that's kind of worst-case scenario," said Mike Lynch, president of Strategic Energy and Economic Research, a consulting firm. "If we don't see (more) cutoffs in Iranian oil supplies, or attacks on oil shipping, we're probably close to a peak now."
Whether they break a record or not, rising gas prices could stunt the nation's sluggish economic recovery. Economists say that higher oil prices may have crimped retail sales.
Apart from automobiles, growth in consumer spending for goods and services has been easing recently — despite a pickup in hiring and income gains.
"I think it's one of the biggest risks in the outlook," Gary Schlossberg, senior economist at Wells Capital Management in San Francisco, said of rising fuel costs. "We're in a yellow zone."
Rising gas prices — in addition to stoking concerns about the economy — are providing fodder for Republicans vying to challenge President Barack Obama in the fall.
Republican presidential primary hopeful Rick Santorum on Monday blamed Obama's "radical environmentalist policies" for the increasing gasoline prices.
Campaigning in Georgia over the weekend, Newt Gingrich reiterated his pledge to lower gasoline prices by accelerating domestic oil exploration and production.
The new economic worries are eerily reminiscent of what happened about this time a year ago when political turmoil flared in Egypt and elsewhere in the oil-rich region, sending crude prices sharply higher for months. The so-called Arab Spring, combined with Japan'searthquake in March and Europe's debt woes, shocked the global economy and helped undercut America's fragile recovery.
Many economists believe the U.S. economy is on firmer footing today, with job growth accelerating and the manufacturing sector strengthening. Lenders are opening up the credit spigot a bit more, and the long-sagging construction sector appears to have turned the corner.
Even though recession fears have eased since last summer, many consumers remain on edge, burdened by heavy debts, and cautious about spending. With high unemployment, sharp public spending cuts and uncertain growth prospects for Europe and slowing in China, analysts say, the U.S. recovery remains highly vulnerable to external shocks.
"The economy looks pretty good at the moment," said Schlossberg, who, like many other economists, is forecasting economic growth of 2.5 percent this year, up from 1.7 percent in 2011. "But the big question is, how big of a drag" will the U.S. see from rising oil prices?
Jakob Duehr, 24, a substitute teacher from Tinley Park, has cut back on discretionary spending in the face of rising fuel costs.
"I notice when they go up quite a bit because that's a serious dent in my wallet," Duehr said.
Scott Strader of Downers Grove went to the Chicago Auto Show to check out electric and hybrid vehicles. He said with signs pointing to record gas prices ahead, alternative technologies may soon be middle-of-the road choices.
"Five dollars is going to be the mental break-off point that changes the way people drive," Strader said while filling up his Toyota pickup truck at a Downers Grove Speedway. "Going to a high price might be good for the United States because it would force people to change their behaviors."
Andrew Bugg, a cabdriver for AM Regional Taxi, a Lisle-based company serving mostly southern DuPage County, said higher fuel costs amount to a cut in earnings — about $105 a week. Without a fare hike or taxi companies' cutting how much drivers pay to use cabs, the impact of higher pump prices will trickle down to drivers, Bugg said.
"There's no planning out distances we haul passengers. It amounts to money out of our pocket," said Bugg, who tries to stick to one geographical area instead of driving customers all over the suburbs. "I'll continue to pay (higher prices) until I can't afford it."
Tribune reporters Brian Slodysko, Jennifer Delgado, Ashley Rueff contributed. Tribune newspapers also contributed.
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