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ENERGY

Pump prices are on the rise

Escalating oil and fuel prices could hurt the U.S. and global economies at an sensitive time, reducing the pace of recovery.

August 04, 2009|Ronald D. White

Those slowly swelling pump prices aren't done yet, energy analysts said, as crude oil futures jumped back above $70 a barrel Monday to close near the year's trading high.

With the economy showing signs of life, energy costs are responding. Rising oil and fuel prices could damage U.S. and global economies at a particularly delicate time, economists warned.

"The increase has already reduced the pace of the recovery," said Paul Bingham, an economist and director of world trade and transportation markets for the business forecasting firm IHS Global Insight.

"Higher energy prices chew into the earnings of companies that have begun to make a little more money and seriously hurts those companies that are still in contraction," Bingham said. "For households, it diverts consumer spending from everything else they might be buying."

Retail gasoline prices had been on a brief respite from their steady ascent to a 2009 high, hit June 22, of an average of $3.005 in California and $2.691 nationally for a gallon of regular.

But they're on the rise again, jumping 6.7 cents to $2.896 a gallon in California over the last week, according to the Energy Department's weekly survey of filling stations, released Monday. The U.S. average price climbed 5.4 cents to $2.557 a gallon.

Oil prices are the primary driver, analysts said, although they were split on whether crude would gush and then remain high, or collapse. There was more agreement on the likelihood that consumers and the economy would be the biggest victims of more expensive fuel.

"Every penny rise at the gasoline pump is equal to $1.5 billion a year from the pockets of American consumers," said Fadel Gheit, senior energy analyst for Oppenheimer & Co. "Another oil bubble is definitely going to hurt the economy."

In New York futures trading Monday, crude oil for September delivery settled at $71.58 a barrel, up $2.13. Oil is closing in on the 2009 high of $72.68 reached June 11.

Encouraging economic news in the form of rising Chinese and U.S. manufacturing statistics was the primary reason behind the increase, analysts said, as investors searched for any sign that an economic recovery finally might be underway.

Weakness in the dollar also contributed; because oil is priced in dollars, a poor showing by U.S. currency makes oil cheaper for foreign buyers.

Some analysts now expect another fuel price surge, although nothing of the magnitude that sent gasoline to record highs last summer.

"This won't be $3-a-gallon gasoline on the way to $3.50 a gallon, then $4 a gallon," said Tom Kloza, chief oil analyst for Oil Price Information Service in Wall, N.J. He predicted a $2.70-a-gallon national average in the coming weeks, with California not quite reaching $3 a gallon.

Strong fuel prices and a weak economy are a painful mixture for Mike Melika, co-owner of Melika European Motors, a car repair shop on Lincoln Boulevard in Venice.

Rising fuel prices will cause some customers to forgo maintenance, he said, while others will come in early, hoping that he has some solution to improve their gasoline mileage. The economy only adds to their angst, he said.

"When the economy is poor, people are not getting as much work done on their cars. When they are doing well, they are maintaining their cars whether fuel prices are high or not," Melika said.

"Now, sometimes they just don't have that extra to spare."

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ron.white@latimes.com

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