The price of crude oil rose within a dollar of its record high Tuesday, continuing a run-up that analysts don’t expect will end anytime soon.
Oil prices have risen roughly 30 percent this year and are about 50 percent higher than a year ago. More expensive oil percolates through the economy, affecting everything from the price of paint to the cost of concrete. But it shows up most quickly and vividly in transportation.
In Illinois Tuesday, the price of a gallon of unleaded gasoline averaged $2.032, near a record and much higher than the $1.743 of a year ago, according to AAA Chicago. In Chicago, gas cost $2.078 a gallon, up 30 cents from a year ago. Similar increases are showing up across the nation.
“I remember when gas used to be $1 a gallon,” North Side resident Robert Mason said while filling up his 2003 Honda Pilot. “Now you need $10 just to go somewhere.”
Oil rose 70 cents to close at $54.59 a barrel on the New York Mercantile Exchange after jumping as high as $55.15. That’s close to the record set Oct. 25, when it reached $55.67 amid high global demand, particularly from China. And the statistics arm of the Energy Department said Tuesday that China’s oil demand will grow this year by 33 percent more than previously forecast.
“I don’t believe this is a speculative bubble,” said Douglas Porter, deputy chief economist with BMO Nesbitt Burns. “It may spike to $60 or $70” a barrel.
Economists say the huge oil finds of the past 150 years are being depleted while demand for petroleum continues to rise. Oil-exporting countries no longer have a margin of reserve, and most are pumping at capacity.
Oil prices leaped above $55 a barrel last fall after decades at less than $40. Petroleum analysts blamed the Russian government’s takeover of Yukos, a huge oil company, along with fears that critical output from Venezuela and Nigeria might be cut off by political unrest. Saudi Arabia promised more production, and oil prices declined until the beginning of the year, when they reversed course.
The Energy Department and the Organization of Petroleum Exporting Countries say stronger demand from China, India and the U.S. is partly to blame for the increase.
Analysts are anxiously awaiting OPEC’s next meeting, scheduled for March 16 in Iran. In the past, OPEC’s 40 percent share of world oil output meant it could dictate long-term trends in prices by setting quotas on production. But that may have changed.
“The only thing that will get us to move decisively lower is a global recession that would reduce demand,” Citigroup Inc. analyst Kyle Cooper told Bloomberg News. “OPEC is pretty powerless to lower prices.”
Analysts raise estimates
Lehman Brothers energy analysts Jeffrey Robertson and Thomas Driscoll told investors Tuesday they were raising their estimated average price of oil through 2006 by $8 a barrel.
“Rising commodity prices, driven in large part by demand growth, have resulted in a shift upwards,” they said.
Although higher oil prices can make their presence felt at all levels of the economy, it’s at the gas pump that consumers feel the most direct impact.
“Sustained domestic growth in gasoline demand, both seasonal and year-over-year, is expected to increase average monthly prices to about $2.15 per gallon by spring” across the nation, the federal Energy Information Administration predicted Tuesday.
Because of taxes and other factors, Illinois prices are usually somewhat higher than the national average, and Chicago gas prices are higher still.
Gasoline costs are felt keenly by Chicago taxi drivers, who pay roughly 25 percent of their gross receipts to fuel their cabs.
Arnie Kast says it costs him $175 to $200 for gasoline to drive his taxi seven days a week, up 10 percent from a year ago.
“I try to work the airport as much as I can,” he said, because that allows him to park and consume less fuel.
Many drivers are working longer hours to try to offset steeper gas costs, said John Moberg, president of the Checker Taxi Association.
“What happens is they become a little crankier, a little more fatigued,” he said.
Their passengers may grow a little crankier as well. Chicago’s taxi industry is pushing for a fare hike to cover the higher cost of fuel.
Inflation worries reignite
The increased expense of petroleum also can lead to higher prices for a universe of manufactured goods. For example, it raises the price of synthetic fiber, leading to higher costs for clothing and other textiles. There is a word to describe an environment of generally rising prices: inflation.
“We will get a bolt of inflation” from higher oil costs, said Peter Morici, an economist and professor at the University of Maryland School of Business, who estimates rising oil prices shaved $60 billion from the nation’s gross domestic product last year.
“This is significant stuff,” he said. “When Americans have an impact like this, they have to accept a somewhat lower standard of living.”
And inflation over decades tends to exaggerate the current price of petroleum and gasoline. For example, the American Petroleum Institute said this week that gasoline is still much cheaper than at its peak during the oil crisis of 24 years ago.
“Gasoline prices are 28 percent lower than the 1981 high of $2.85 per gallon” in current dollars, the institute said.
But it doesn’t feel that way to motorists, especially those who weren’t here in 1981.
Eric Kripas, a 21-year-old student at Columbia College, stopped for gas Tuesday at a BP station at West Ontario Street and North LaSalle Street before driving home to Naperville.
“I only put in $10 at a time,” Kripas said. “It’s real expensive here, $2.25 [a gallon]. If it goes to $2.30 a gallon, I’m going to take the train.”
