|
By Michael E Kanell
Atlanta Journal-Constitution
Thursday, January 3, 2008
The dreaded three-digit level has finally been reached — if, so far, just briefly.
For a single trading moment Wednesday, the global price of oil advanced to $100 a barrel, then quickly retreated as if spooked by the ominous implications of hitting that symbolic mark.
Not that it fell far. Oil finished the Nymex trading day at a record close of $99.62 a barrel, up $3.64 during the session.
A change of a few dollars is minor. But with high oil prices linked to past recessions and the current economy already stumbling, the three-digit barrel has long been feared because it is a burden on consumers and companies alike. It not only combined with disappointing U.S. manufacturing data to knock 220 points off the Dow on Wednesday, but it foreshadows higher gasoline prices for drivers and mounting costs for airlines and other fuel-dependent firms.
Gas prices will almost certainly keep rising — but perhaps not dramatically, since demand for gasoline in winter is generally at an ebb.
A gallon of regular gasoline averaged $2.97 in metro Atlanta on Wednesday, according to GasBuddy.com. That's roughly 20 cents a gallon shy of the 2005 peak that came in the wake of Hurricane Katrina. Prices last spring also breached $3 a gallon.
But after typically sliding to an annual low in the late winter, gas prices generally climb in the spring to hit a high around Memorial Day. The chances for gasoline to hit $4 a gallon ultimately depends on further climbs in global oil prices.
Unfortunately for drivers, that seems all too possible.
"I think today was a little heavy on speculative activity," said John Kingston, director of oil at Platt's, an energy pricing and information service. "But the trend has been so inexorably upward, you have to say it's real."
Demand up, supply not
In some ways, the immediate causes of the recent climb were ho-hum, said Tex Pitfield, president and chief executive of Saraguay Petroleum Corp., an Atlanta-based fuel distributor.
The basics of futures trading were at work, he said: worries about supplies and inventories while demand for heating oil rose. "Oil always goes up when you get a cold snap. This is a standard, knee-jerk reaction to a cold snap in the winter."
Even adjusted for inflation, Wednesday's $100-a-barrel oil is "smack in the range of the records," said Govind Hariharan, chairman of economics analysis at Kennesaw State's Coles College of Business.
Yet by itself, oil prices don't have the poisonous power they once did.
The U.S. economy is less vulnerable to oil prices than it was several decades ago, Hariharan said: Energy spending now accounts for 5.7 percent of after-tax income — down from 7.9 percent in 1981.
One side of the equation is the anemic growth in supply — and the worry about disruptions.
Iraq has not regained even the modest oil production of before the U.S. invasion, according to the Energy Information Administration. Worries about next-door Iran accelerated last year along with U.S.-Iranian tension. Many other large oil producers are places of political instability or potential terrorism: Venezuela, Saudi Arabia, Russia and Nigeria.
But the demand side is also a factor: Energy has fueled the spectacular growth in both China and India. That, too, is likely to continue, said Emily Sanders, president and CEO of Sanders Financial Management in Norcross.
"With the hyper building boom leading up to the Olympics in August, I don't see why demand for oil in China would ease up," she said. "I think the price of oil will be $120 a barrel by the Olympics. And I think gas will go up correspondingly."
Sanders says the economy can handle that added burden.
What is dangerous, she said, is that high energy costs are seeping through an economy that is already wobbly after swallowing the real estate bust, the subprime mortgage meltdown and the credit crunch. "The U.S. economy is very resilient. Where it would really hurt is if other sectors do not rebound."
Airlines brace for shock
Among sectors at risk is transportation. The spot price of jet fuel jumped
4 cents Wednesday to $2.78 per gallon, its highest level since it briefly topped $3 per gallon in the fall of 2005.
That past spike helped drive Delta Air Lines into bankruptcy. Delta lopped billions of dollars in annual expenses from its budget before emerging from Chapter 11 this spring.
But Delta and most other carriers still have few protections from the soaring cost of fuel, typically their biggest expense. Each penny's increase in the cost of jet fuel boosts Delta's annual fuel bill by about $25 million.
The carrier, which employs about 25,000 in Georgia and 50,000 in total, recently announced plans to cut domestic capacity up to 5 percent and shift more planes to more lucrative overseas flights. Delta also froze hiring and cut a small number of jobs at its Atlanta headquarters.
Meanwhile, AirTran Airways, Delta's biggest rival in Atlanta, also said it could ratchet back growth plans some more if high fuel costs persist. The discount carrier, which employs nearly 6,000 in Atlanta, recently said it will delay aircraft deliveries, roughly halving its usual capacity growth rate to 10 percent this year.
— Staff writer Russell Grantham contributed to this article.
|
