Higher oil prices would hamper global economy

WASHINGTON — Just as the U.S. and global economies are finally strengthening, they face a new danger: Rocketing oil prices, which topped $100 a barrel Wednesday.

The U.S. economy can likely absorb $100 oil and keep expanding, even though gasoline prices would rise further and growth would slow. But it would hurt.

Gasoline for U.S. motorists already costs more than at any point since 2008, despite fairly modest demand and ample U.S. supplies. The national average for a gallon of unleaded gasoline was $3.19 on Wednesday — 53 cents more than a year ago. Analysts expect the average to range between $3.25 and $3.75 this spring.

As of Wednesday in the Medford-Ashland area, gas prices averaged $3.40 for a gallon of regular unleaded gasoline.

Oil prices had been rising for months, but they jumped this week as violence gripped Libya. Analysts say any production declines in Libya could likely be absorbed by other producers like Saudi Arabia. Libyan oil accounts for less than 1 percent of U.S. crude imports.

Still, regional turmoil can still raise the price of oil, regardless of the source. Analysts say concerns about violence in North Africa and Middle East have put a "fear premium" that's added about $10 a barrel.

Consumers and businesses would feel pinched by $100-a-barrel oil — and not just motorists. Stock prices, which have lost more than 2 percent this week, could sink further. That would reduce household wealth and consumer confidence. As fuel costs price rise, so would prices for travel services and products containing plastics.

Air travelers would pay more. This month, several airlines tacked on fuel surcharges — extra fees that help cover fuel bills. Surcharges had nearly disappeared after fuel prices tanked in late 2008.

Since then, rising oil prices have pushed jet fuel close to $3 a gallon. Fuel accounts for roughly one-third of the budget for U.S. airlines, up from less than one-fifth a decade ago. Fitch Ratings analyst William Warlick said if jet fuel reaches about $3.20 a gallon, "the whole industry will be challenged to stay profitable."

Analysts estimate that over a year, $100 oil would reduce U.S. economic growth by 0.2 or 0.3 of a percentage point. So rather than grow an estimated 3.7 percent this year, the economy would expand 3.4 percent or 3.5 percent. That would likely mean less hiring and higher unemployment.

The global economy wouldn't be affected as much. In part, that's because emerging economies consume less oil, per person, than industrialized countries do. Global growth would slip about 0.1 percentage point, economists said. In addition, many developing countries regulate or subsidize the cost of gas.

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