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 ample supplies. The national average for a gallon of unleaded 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.
Inland area prices averaged $3.55 for a gallon of regular Wednesday, up more than 60 cents from last year, according to the AAA Daily Fuel Gauge report. They peaked in June 2008 at $4.61.
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 such as Saudi Arabia. Libyan oil accounts for less than 1 percent of U.S. crude imports.
Still, analysts say concerns about violence in North Africa and the Middle East have created a "fear premium" that has added about $10 a barrel.
Consumers and businesses would feel pinched by a sustained period of $100-a-barrel oil -- and not just motorists. Stock prices, which have lost more than 2 percent so far 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.
This month, several airlines tacked on fuel surcharges -- extra fees that help cover fuel bills.
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 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. In addition, many developing countries regulate or subsidize the cost of gas. Global growth would slip about 0.1 percentage point, economists estimate.
But oil prices around $100 a barrel could threaten European economies, many of which are net importers of oil and gas, haven't fully recovered from the financial crisis and face heavy debt loads. Spain and Italy, for example, where gas at the pump already goes for about $8 a gallon, face years of a slow, grinding recovery.
Pricier oil would also push up inflation in Europe, where it already exceeds official targets, and in countries with surging food prices, such as China, Brazil and India. Those countries might then have to raise interest rates to cool inflation. Doing so, in turn, would slow growth in Latin America and Asia.
Gasoline prices would near $5 a gallon. Consumers would spend much less. So would businesses, which would slash jobs.
Ken Perkins of RetailMetrics, a retail research firm, thinks higher gas prices at the tank are already affecting low-income shoppers who are also paying higher grocery prices. He says gas prices would have to reach $4 a gallon or more to affect middle-income consumers.
Fears of another unchecked jump in prices have rattled investors. This week, investors have dumped stocks and shifted money into the safety of Treasury bonds, causing Treasury yields to fall.
A persistent drop in the stock market would likely chill spending, especially by wealthier Americans. Europe's debt crisis in the spring of 2010 jolted Wall Street and slowed the U.S. economy as Americans reined in their spending.
David Hensley, an economist at JPMorgan Chase, said that if oil prices level off, even at $100 a barrel, the damage to the global economy would be slight and likely confined to the first half of this year. He thinks most countries could adapt to higher prices.
"But if the price keeps going up, and it's accompanied by falling stock prices, then it takes on a more sinister tone," Hensley said.
