Get ready for $50 oil
http://moneycentral.msn.com/content/invest/extra/P91349... Supply is shaky as ever, demand is relentless and heating season just is around the corner. Here's what the daily march into record territory means at the gas pump and to the economy.
By Kim Khan
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So what would such a whopping price for oil mean to your finances?
-Gas. Fuel prices would rise and put a further strain on household budgets.
-Inflation. High energy prices could spill over and put upward pressure on other consumer prices.
-Jobs. Companies concerned about runaway energy costs could refrain from hiring new workers.
-Interest rates. The Federal Reserve could raise rates at a faster pace to keep prices in check.
A full tank, an empty wallet
The most obvious place consumers feel the energy pinch is at the gas pump. Oddly enough, gas prices actually slid last week despite the recent run-up in crude. But don’t expect that disconnect to last forever. Historically, gas prices have tracked crude prices.
There’s more of a lag between oil cost and pump prices in the summer than in the winter. During the summer months, when crude inventories are rising, prices aren’t passed down to the retail level as quickly, Jacques Rousseau, oil analyst at Friedman, Billings, Ramsey told CNBC’s “Morning Call.” Instead, it’s the refiners that feel the pinch. In the winter, when inventories are drawn down, prices are passed on more quickly, Rousseau said.
No matter how quickly the cost is passed on, the fact remains that when consumers pay more at the pump, they have less to spend elsewhere. Gas at $2 a gallon costs a driver in a 15 mpg car driven 15,000 miles a year $500 more than gas at $1.50. A rule of thumb is that each $1 increase in the cost of crude adds 2.4 cents at the pump.
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