Gasoline prices are setting records across Europe and exceeding $4 a gallon in California as the rise in crude oil caused by the conflict in Libya punishes companies and consumers.
Households are cutting back on travel, cinema visits and groceries in the U.K., where prices jumped to 130.68 pence a liter ($8.06 a gallon) yesterday, according to research from the Automobile Association, Britain’s largest motoring organization. Prices set records in the Netherlands and Italy today. The current average U.S. gasoline price is near a two-year high at $3.81 a gallon, according to the AAA website.
Crude oil’s rise to as high as $119 in Europe has pushed fuel costs up and put the economic recovery at risk. The impact on consumer prices may push European Central Bank President Jean-Claude Trichet to raise interest rates as soon as next month to discourage higher wages and head off the threat of an inflationary spiral.
“Rising fuel costs are negative because they push inflation up and slow the economy down,” said Philip Shaw, chief economist at Investec Securities in London. “It is essentially energy costs that have resulted in ECB putting its finger on the interest rate trigger.”
Higher fuel prices are pushing up costs for retailers such as Tesco Plc in the U.K. and Wal-Mart Stores Inc. in the U.S. and increasing concern that consumers will pare back spending.
“As we think about rising prices of gasoline, clothing, food, etc., we are concerned with the impact on the consumer confidence and spending,” Robert Hull, chief financial officer of Lowe’s Cos., the second-biggest U.S. home-improvement retailer, said on Feb. 23.
Oil has gained 23 percent in London this year as the armed rebellion in oil producer Libya spurs prices. The jump in prices to $147 a barrel in 2008 exacerbated the recession following the global financial crisis.
Brent futures, the benchmark for Europe, traded at $116.20 a barrel today. The futures contract reached a two-year high of $119.79 on Feb. 24. In the U.S., West Texas Intermediate futures traded at $103.03 a barrel today, close to this year’s high of $103.41 also reached on Feb. 24.
In contrast to Trichet, Federal Reserve Chairman Ben S. Bernanke suggested the U.S. is unlikely to raise interest rates soon, saying this week that the surge in oil and other commodity prices probably won’t cause a permanent increase in broader inflation.
“The economy’s recovery is not firmly established, and we think monetary policy needs to be supportive,” Bernanke said. Trichet, by contrast, said yesterday that “strong vigilance is warranted” and that an increase from record low interest rates is “possible” in April.
In Italy, gasoline prices reached 1.544 euros a liter and diesel climbed to 1.438 euros a liter ($8.17 a gallon), according to a chart published by web energy daily Quotidiano Energia. Gasoline prices in the Netherlands reached a record 1.697 euro a liter from 1.692 euro in June 2008, according to Paul van Selms, head of UnitedConsumers, a lobby group for consumers in the Netherlands.
The average price for super-grade gasoline in Germany, Europe’s largest economy, was 1.55 euros per liter today, close to the 1.58 euro record from 2008.
Drivers in California are paying more than $4 a gallon for premium grade, according to AAA.
“If you go out into the country, people are down on their knees asking for lower prices,” said Luke Bosdet, a spokesman for the AA in the U.K. “The echoes of 2008 are very strong. The only thing we can hope for is an economic recovery strong enough to push up wages to absorb the costs. Until then, the lower- income driver has to leave their car in the garage.”
Oil companies such as BP Plc and Royal Dutch Shell Plc aren’t reaping a windfall from the surge in fuel prices because of weak refining margins and the risk higher costs will reduce demand, said David Hart, an analyst at Westhouse Securities Ltd.
“The price at the pump grabs headlines, but it’s not where oil companies make money,” said Hart. “It’s crude prices. But energy costs are detrimental to demand at this level.”
The price of oil is nearing the point at which it will start to hurt the world economy, said Adam Sieminski, chief energy economist at Deutsche Bank AG. An increase in the oil price to $150 a barrel would reduce global economic growth by 2.5 percentage points, returning it to recessionary territory, and there’s a 10 percent to 15 percent probability of that price being reached, he said in a report published yesterday.