With crude oil prices hovering at multi-decade highs and gasoline stubbornly high, analysts fear that high costs will eventually hamper economic growth.
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If crude stays above $125 a barrel — with the potential to hit $150 a barrel — gasoline might rise as high as $5.25 a gallon, according to Schork Group calculations. Even following adjusting for inflation, that would be a record high. Historically, gasoline prices rising to $3.60 to $3.7 a gallon start to destroy demand.
Almost all of the increase in U.S. retail sales in February came from sales at gas stations, the data showed, a month that typically has the weakest demand in a year.
“Consumption at gas stations increased by 5.3% in February. Excluding related sales, retail sales actually fell. It is clear that consumers are now starting to feel the impact of increased energy costs.” Stephen Schork, head of Schork Group, told Yahoo Finance : “The current rally is unprecedented. If oil rises above $125, demand will start to decline.”
Tamar Essner, head of Vectis Energy Partners, recently told Yahoo Finance: “It’s not just high oil prices, but gas, energy, agricultural products and food. So if oil prices stay at these levels, it’s going to be more disruptive.”
Price pressures on consumer goods such as oil and gas have also impacted fuel costs in transport and aviation ahead of the summer travel season. Businesses have foreseen rising operating costs and are ready to pass them on to consumers.
Unusually high oil prices have stifled the economic recovery from the pandemic, and the Fed is now prioritizing price stability, with Chairman Powell publicly acknowledging following the March rate meeting that higher oil and commodity prices have led the Federal Open Market Committee to reassess economic growth. Still, Powell believes that even with high oil prices, “the odds of a recession next year are not particularly high.”
“We’re shocked to see consumers go up in prices,” Essner said. “The question is, will this shock translate into actual demand destruction?”
