War, weather and political uncertainty are propelling oil prices higher, raising fears that the economic recession will linger as energy costs suck money from consumers and profits from businesses.
On Friday, the price of a barrel of oil rose to nearly $37, a two-year high. No one knows how high the price could go, but economists say $40 isn’t out of the question. Already, the increase has hurt a surprisingly diverse group of consumers.
The nation’s airlines and Paul Thompson, a 38-year-old Waukegan resident, have something in common–an aversion to higher fuel prices.
Continental Airlines on Friday increased airfares by $10 each way to offset rising fuel costs, a move quickly matched by American Airlines. Meanwhile, Thompson, a shuttle driver who transports sailors from the Great Lakes Naval Training Center in North Chicago to Gurnee Mills mall, is thinking about adjusting his prices upward as well.
“This van drinks a lot of gas,” said Thompson, 38, as he filled up at a Vernon Hills gas station. He said the cost to fill his tank has risen to $45 from $35 over the past couple weeks.
“I fill up on a Saturday night, and then I look on Sunday, and I’ve got to fill up again,” he said.
Thompson owns Sir-T Transportation Service, driving up to 500 miles a weekend. He charges sailors $3 each way, but that could change.
“There’ll be a lot of screaming and yelling from the sailors,” he said, “but we have to do something to make up for this.”
The AAA-Chicago Motor Club said unleaded regular gasoline averages $1.70 a gallon in Cook County. A year ago, it was $1.17. Though gas is a bit cheaper in the collar counties, premium gasoline has topped $2 at some Chicago stations.
“Anytime we see a drastic increase in the price of crude oil, those increases are directly reflected in retail gasoline prices,” said Mark Bruno, a spokesman for the auto club.
The threat of war with Iraq and the possible interruption of that nation’s petroleum exports are pushing oil costs higher. But a strike in Venezuela’s oil industry also is contributing to the problem.
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Venezuela is a major supplier to the United States. Oil industry analysts say that even if the strike ended, production wouldn’t return to normal for months. Some wells have collapsed, and others are choked by the country’s heavy petroleum, which turns into an asphalt-like goo if allowed to stand.
$60 per barrel possible
How much worse could it get?
The Center for Strategic and International Studies looked at the likely cost of petroleum under several different scenarios.
Robert Ebel, director of the Washington think tank’s energy program, said the worst possible outcome is alarming.
“Saddam Hussein reacts violently, he attacks Israel, and there is sabotage inside Kuwait and Saudi Arabia,” Ebel said. That could push oil to $60 a barrel, he said.
There is another, more benign scenario. Petroleum producers everywhere increase output in expectation of shortages, but war is averted.
Under those circumstances, oil could fall to $16 a barrel by next year, Ebel said.
Some industry observers said that happy outcome is quite possible.
“That is what I think is more likely–a collapse in oil prices,” said Sherry Cooper, global economic strategist for Harris Bank.
The petroleum industry has a 100-year history of boom and bust, with oil prices rising quickly and then falling just as fast.
“If the Iraq war is over in 36 hours, oil could go back to $20 a barrel or less in a matter of days,” said Paul Larson, an energy analyst with Morningstar.
Heating costs way up
For now, higher energy prices have made their way into the home.
The Northeast is suffering an abnormally cold winter, and that has raised the cost of home heating oil there. In Illinois, a cold winter and limited supplies of natural gas have made it far more expensive to heat homes and businesses.
Kris Lathan, spokeswoman for Nicor Gas, said it cost an average of $180 to heat a home of 2,000 to 2,500 square feet in January.
A year ago, that same residence could be kept warm for $80.
Rod Sierra, a spokesman for Peoples Energy, the gas company serving Chicago, said higher natural gas prices are part of the problem.
“We are about 50 percent higher than last year,” he said.
Of course, the weather has contributed to the problem.
“Last year was an extremely warm winter,” Sierra said. “It’s much colder than last year–about normal for a Chicago winter.”
Some people seem almost resigned to higher energy prices, viewing them as undesirable and inevitable.
Robert Wilson feels the pinch of higher gas prices every day, as he drives his cream-colored Cadillac Eldorado more than 30 miles each way from his home in Bellwood to his job in Lake Forest.
“I don’t have a choice,” Wilson said of his daily commute. “I can’t cut back on my driving.”
He fears prices will get worse before they get better.
“I don’t know what this crisis is all about, but I guarantee if we go to war the prices are going to go up even further,” Wilson said. “And believe me, we are going to go to war.”
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