OT (Oil Topic)-->Oil Closes in on $30 a Barrel

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http://biz.yahoo.com/apf/000122/oil_s_impa_1.html Saturday January 22, 1:13 am Eastern Time Oil Closes in on $30 a Barrel By DAVE CARPENTER AP Business Writer Oil prices this week climbed to almost $30 a barrel for the first time since the Persian Gulf War, raising worries that consumer prices could follow and in turn drive up interest rates.

But aside from the costlier heating oil, gasoline and transportation rates, and the fuel surcharges on airplane tickets, inflation remains tame. And the U.S. economy has barely blinked at oil's impact.

The reason: Oil simply doesn't lubricate the new, tech-savvy U.S. economy the way it once did.

Still, economists say there will be bigger trouble ahead if oil's rise isn't stopped soon.

``If it went to $40 a barrel, it would be disruptive,'' said Bruce Steinberg, chief economist for Merrill Lynch. ``You can't keep going up endlessly without having an effect.''

Prices for crude have jumped nearly $5 a barrel in the past week. On Friday, the near-term March contract was trading at around $29 a barrel on the New York Mercantile Exchange. Heating oil, spurred not only by oil's surge but a Northeastern cold snap, has risen 50 percent since the beginning of last week.

``It doesn't deter me,'' motorist Chip Tuttle said at a Boston gas station Friday as he paid $43 to fill his sport-utility vehicle. ``The economy is good.''

William Cheney, chief economist for John Hancock Financial Services, said, ``Oil's overall impact on the economy is vastly reduced'' from years past.

``That's due to the increased energy efficiency of companies that use oil heavily and the increased importance of industries that are not heavily dependent on it,'' Cheney said.

The era of cheap oil began to close last March when the Organization of Petroleum Exporting Countries -- disturbed by a world glut that drove crude down to $11.37 a barrel in February -- cut production by 4.3 million barrels a day to thin supplies and push up the price.

OPEC's strategy worked. Prices more than doubled, reaching a nine-year high in November that was set again this week.

Two decades ago, a similarly huge spike in oil prices created long lines for gas and sent the U.S. economy into shock. But in 1999, while fuel oil and gasoline prices climbed sharply, the ``core'' rate of inflation -- excluding the volatile energy and food sectors -- rose at its smallest rate in 34 years, just 1.9 percent.

What happened to inflation?

Some economists are still warning of dire consequences, especially if oil's rise continues unabated. Phil Verleger, economist for the Brattle Group, a consulting firm in Cambridge, Mass., sees oil headed to $40 by year's end, prompting several interest rate increases and a recession by year's end.

But America has built up a much better resistance to energy shock. The trouble in the 1970s helped spawn a new energy consciousness and the giant steps taken by technology steered the economy away from manufacturing and toward services and the Internet.

Oil expenditures, which accounted for 8.5 percent of gross domestic product in 1981, have fallen to about 3 percent, according to the U.S. Energy Information Administration.

``Oil is still probably the single most important price that affects the well-being of Americans,'' said Cheney. ``When the price goes up ... America is in a sense a little poorer. But we are much better at adapting to it now.''

Adjusting or not, consumers are being increasingly squeezed by oil's rise. Among the latest consequences of the increase in prices:

--The nation's top airlines said this week they are adding a $20 surcharge to round-trip tickets because of jet fuel costs.

--Trucking companies are raising rates by up to 6 percent.

--Business owners are beginning to pass on to consumers the new, higher prices charged by shippers.

--U.S. gasoline prices are rising again.

Copyright ) 2000 Yahoo! All Rights Reserved.

-- Dee (T1Colt556@aol.com), January 22, 2000

Answers

I don't know whether to laugh or cry. Either this reporter is the dumbest stiff out there, or the media spin is in overdrive.

"The reason: oil simply doesn't lubricate the new, tech-savvy U.S. economy the way it once did."

Did you hear that? Because this economy is "tech-savvy", workers don't need gasoline to get to work! Produce from California & Florida just magically moves all across the country without needing fuel of any kind to get it there! New SUVs are actually quite thrifty on gas! This is so absurd, it is scary.

-- J (Y2J@home.com), January 23, 2000.

"The reason: oil simply doesn't lubricate the new, tech-savvy U.S. economy the way it once did."

That must be why oil imports to the U.S. are at an all-time HIGH.

Ahh, that polly "don't confuse me with the FACTS" logic!

-- Dennis (djolson@pressenter.com), January 23, 2000.


J,

While I too think this is almost a complete load of crap there is something to the argument that the Internet can/has changed our use of oil. When my wife wanted a present for a bridal shower she bought it on the web. When I needed a knob for my 20 year old oven I found and bought it on the web. Most of my friends buy their music/books/videos on the web.

All that commerce takes place without any of us getting in our cars and driving around looking for what we want. While goods still need to be delivered it's a heck of a lot more efficient for UPS to make one more stop on their already optimized routes than it is for all of us to drive around individually.

-TECH32-

-- TECH32 (TECH32@NOMAIL.COM), January 23, 2000.


-TECH32-

I agree with you that the net has made it easier to shop without driving, and who needs to go to a physical library when the net has it all right at your computer. BUT, there is no way that the net has impacted our nation's use of oil in a dramatic way. Maybe some day, but not yet.

-- J (Y2J@home.com), January 23, 2000.

Look for bunker oil to possibly become a hot topic as northeastern US electric utilities see their tanks start running dry. It's an overlooked oil product that might become a critical item is it's affected the way diesel has been.

Don't want to see this cold weather around if the fuel runs out at the oil-fired power plants supplying Long Island, NYC, Boston, Philly, Baltimore and NJ.

WW

-- Wildweasel (vtmldm@epix.net), January 23, 2000.



America has simply exported many of our oil intensive factories...but we still need to import those products...

Also, as the price of oil in dollars rise, if it stays long, many countries will be forced to use up dollar reserves to buy oil...this dollar content will then suddenly be circulating rather than sitting in reserves...which will drive down the value of the dollar and raise the dollar prices of our imports...or drive our importing partners out of business.

There is a great line in the declaration of independance which starts..."Prudence will indeed dictate that...." Some time ago it seems that our government forgot that we once used prudence.

slow guy

-- not so fast (neweconomy@no oil.fiz), January 23, 2000.


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