Oil Hits New High, Gas Prices Escalate

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Oil Hits New High, Gas Prices Escalate

NEW YORK -- Crude oil prices surged to a new record, reaching $102.08 a barrel yesterday, due to a surge in commodities triggered by the sagging U.S. dollar and worsening U.S. economic data, Reuters reported.

The dollar fell to an all-time low against the euro, following U.S. data showed a gloomy outlook for the U.S. economy, the report stated. Another factor was a sharp increase in inflation, as data showed wholesale prices rose 1 percent in January and 7.4 percent on an annual basis, according to the report.

"In this climate, therefore, people tend to buy real assets like oil and gold," Colin Morton, investment director at Rensburg Fund Managers, told Reuters.

Meanwhile, a report by the New York Times stated that gasoline prices, which have not succumbed to the drastic increases seen in crude oil, are suddenly rising quickly, and analysts predict per gallon prices could reach $4 by spring.

As of Tuesday, regular gasoline sold at a nationwide average of $3.14 a gallon, a 19 cent increase from two weeks ago and nearly 80 cents over the $2.35 seen a year ago, the report stated, citing automobile club AAA.

Such increases come at a bad time for the economy, according to the report. With slowed growth, the high energy prices previously absorbed by consumers are now more likely to put pressure on household budgets, which could ultimately intensify the worsening U.S. economy.

"I used to fill it up pretty regularly, but now I drive it until the tank is almost empty, looking for the cheapest place to buy gas," Phyllis Berry, 31, told the Times. The General Motors factory worker added she used to take her four children to the movies four or five times a month, but with the cost of gas, tickets, popcorn and soda – which add up to $70 -- they now go only once a month, according to the report.

Moreover, economists cited by the Times argue that energy's share of disposable income is slowly increasing -- last December, the figure reached 6.1 percent, the highest level since 1985, according to the report. The two percentage points increase amounts to $200 billion, which is little less than half what Americans spend annually on new cars and automobile parts, the Times reported.

"You're adding an oil shock on top of a crunch on credit and a housing collapse," Nigel Gault, an economist at Global Insight, told the newspaper. "Even the U.S. economy cannot withstand all of that at the same time."

There are signs that Americans are cutting back on energy usage. Oil demand in the U.S. grew by 0.4 percent in 2007, and is expected to be flat in 2008, the report stated. Meanwhile, the Energy Department's latest report predicted gasoline prices should peak near $3.40 a gallon this spring, the Times reported.

"We've gone this high without the normal summer dynamics," Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service, told the newspaper. "That's when I think we will have the big jump -- of 50 cents to 75 cents a gallon."

Kloza expects gasoline to peak around $3.50 to $3.75 a gallon nationwide, while Geoff Sundstrom, spokesman for AAA told the Times $4 a gallon gasoline is possible this summer.

"We've gone from a worrying situation for gasoline to one that is quite alarming," Sundstrom said.