Oil hit $70 a day on world markets, reports USA Today. Gas is getting near $3 a gallon at the pump here and it’s even worse in California.
And the summer driving season hasn’t really started! OPEC is saying that world demand will weaken.
They would say that, wouldn’t they? They are trying to discourage cheating among members who might be tempted to pump a little bit more to cash in on those high prices. On the other hand, OPEC did base its predictions on faltering demand in the U.S. last quarter and expect that rising interest rates will push that down further.
The traders pushing oil up are not paying attention to consumer behavior or economic fundamentals. They’re looking at the continuing crises in Iran and Nigeria which are contributing to the global oil pool now but their share is looking more and more shaky.
The scariest number of all is $500 million a day. That’s what one analyst says consumers in the U.S. are spending to buy gasoline compared to a year ago. And that’s $500 million they don’t have to spend on other things. It’s not quite the obscene trillions of petrodollars that piled up in the Middle East in the 1970s but just thinking about it is scary enough.
Fed chairman Ben Bernanke is quoted in another story as saying: “High energy prices have sapped consumer and business spending and depressed economic growth by as much as 1 percentage point since energy prices began to rise in late-2003.”
And it’s not hard to see how this could slow things down in Southern Nevada. Summer is the slow season for conventions and even many vacationers from California prefer to avoid long stays in Las Vegas when the mercury hits 100. This will also put more pressure on airfares as hedging runs out for even the smart guys like Southwest.
And new numbers from the government suggest that inflation apart from gasoline is good but that housing is really slowing down. The Labor Department reports that its producer price index, a gauge of prices received by farms, factories and refineries, climbed 0.5 percent in March as energy prices rose. But so-called core prices, which exclude food and energy, rose just 0.1 percent, according to the Associated Press. Gas increased by 9.1 percent in March, the biggest one-month gain since November 2004.
Separately, the Commerce Department said new housing starts fell 7.8 percent to a 1.960 million units, the lowest in a year. Analysts say this will finally get the Fed to end its routine of ratcheting up interest rates. With all this news of a faltering economy, the Fed will have to ease up soon or risk a real downturn.
