- The Washington Times - Friday, August 12, 2005

The relentless climb of oil prices to a new record near $67 a barrel yesterday drove up the trade deficit, sent stocks diving and added to the woes of traveling Americans.

The sharp increase in oil prices in the past week means that gasoline prices, already at a record high locally at an average $2.398 a gallon for regular, are headed higher in the weeks ahead.

A poll released yesterday showed that consumers, who shrugged off the gains in oil prices earlier this summer and went on an SUV-buying binge, have been rattled by the latest steep climb in prices at the pump.

Almost two-thirds of consumers polled by the Associated Press and America Online News said they expect fuel costs to cause them financial hardships in coming months — up from half of consumers in April, when gas cost around $2.20 a gallon.

“If it gets any higher, I won’t be able to drive,” Lois Zumm, a semiretired Wisconsin library worker told the pollsters. “I live off my Social Security mostly. And I’ve got to save something for winter because the heating costs are going to be out of this world.”

Vacationing Americans, whether driving or flying, also are getting hit with higher fuel costs. The cost of filling up now ranges between $30 for subcompact cars to $80 for sports utility vehicles and trucks.

Meanwhile, major airlines have raised their ticket prices by an average of $10 per round trip to cover higher jet-fuel costs.

Consumers, apparently lulled by a slight pullback in gas prices after a spring run-up before Memorial Day, went on a spending spree at car dealerships in July, buying a near-record number of gas-guzzling SUVs in response to deep discounts offered by manufacturers.

The failure of American consumers to respond to high prices by buying more fuel-efficient vehicles or cutting back on travel is a major reason that oil prices keep going up, oil analysts say.

Robust demand during the summer travel season in particular has coincided with tight supplies worldwide and more refinery outages than usual to put pressure on prices, they say.

Yesterday, evidence emerged that the jump in fuel prices is hurting consumer confidence, as the University of Michigan reported a drop in its consumer sentiment index for August.

“It has a rather large effect on the public’s mood about the economy, especially among lower-income households,” said Richard Curtin, the university’s director of consumer surveys. “It directly reduces their spendable income, because they are not able to conserve their use of gas very easily — their trips to work and to the store.”

The mounting drag on consumers’ confidence and pocketbooks could lead to a pullback in spending on other items, economists say, and is one reason why financial markets worry about oil-price spikes.

The stock market, which ignored surging oil prices earlier in the week, yesterday fell as the price of premium crude spiked to $66.86 a barrel in New York trading. The Dow Jones Industrial Average dropped 86 points to 10,600.

The oil punch packed a double whammy, because it came as the Commerce Department reported a 6 percent increase in the trade deficit to $58.8 billion in June, citing soaring imports of oil, as well as clothing from China.

Fuel consumption worldwide is rising at a 2 percent annual pace, while supplies are inching up at a slower rate, according to the International Energy Agency.

The growing demand in the United States, in particular, has led to record oil imports of nearly $170 billion in the past year, accounting for about a quarter of the trade deficit.

“We’re getting higher and higher oil prices each day, and you’ll continue to see a larger drag on the economy through the summer months,” Citigroup Global Markets economist Steven Wieting said.

Joseph P. Quinlan, chief investment strategist at Banc of America Securities, says he expects high oil prices to put a “squeeze” on the economy rather than jolt it with a “shock” as it did in previous eras, when soaring oil prices were implicated in several recessions.

The economies of Europe and Asia already have slowed under the weight of higher oil prices this year, he said, and now the U.S. may be starting to react.

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