Gasoline's Rise
Consumers' response to costlier gasoline is pivotal because they account for about 70% of the U.S. economy and feel oil-market disruptions with every fill-up, economists said. At $3.51 a gallon yesterday in a survey by Heathrow, Fla.-based motorist group AAA, the average U.S. retail price for regular unleaded gasoline has risen about 14% this year.
The duration of higher prices will determine how consumers react, said Daniel Yergin, chairman of IHS-Cambridge Energy Research Associates Inc. in Cambridge, Mass., and author of the 1991 oil-industry history "The Prize: The Epic Quest for Oil, Money and Power."
"If it's a short term, then take it in stride," Yergin said in an interview. "If it's longer term, if it extends out weeks or months, then it really becomes a very big question mark for economic recovery."
'Main Conduit'
A $10-a-barrel increase in crude would "reduce growth by somewhere between 0.2 to 0.3 percentage points per year in each of the next two years," said Drew Matus, senior economist at UBS Securities LLC in New York. "It's basically an overall impact on the economy, but obviously the main conduit through which it would act would be the U.S. consumer."
While that kind of drag wouldn't come close to pushing the U.S. back into a recession, it would slow the rebound from the worst economic slump since the Great Depression. For 2010, the world's largest economy expanded 2.8%, the most in five years, after shrinking 2.6% in 2009.
Oil at $125 would be "really a crucial tipping point," pushing gasoline to $4 a gallon, said Carl Riccadonna, senior U.S. economist at Deutsche Bank Securities Inc. in New York.
"That would be the level where we start to significantly downgrade our economic projections," Riccadonna said, including a 50% slash in his forecast for growth of about 3.1% in household consumption.
'Stall Speed'