Wave of bad news drives up oil prices

Experts say the sting at the pumps could deal another blow to the sluggish economy.

Supply worries helped push oil futures above $80 a barrel Wednesday, before the commodity closed at a record high of $79.91. That could pressure consumers and businesses already stung by sluggish housing prices and a credit crunch.

With gasoline prices rising, motorists and corporations are studying their shrinking wallets with alarm, signaling more turbulence ahead for an economy that so far has weathered high energy costs.
“Gas prices affect everything,” said Ruben Guerra, who owns packaging and commercial construction companies in the City of Commerce. “It’s the extra money you need to take your kids to Magic Mountain or Disneyland, but now you need to spend it on gas.”

Economist Nigel Gault of Global Insight said the oil-price surge was “not a hammer blow” that would necessarily drive the U.S. economy into a tailspin, but “$80-a-barrel oil pushes us closer to a recession. It hurts us at the margins.”

Another expert said it was bad timing for the economy.

“The last thing you want to do is to make it more difficult for American consumers to spend more on goods produced in the United States. This is just going to make it more difficult to dig ourselves out,” said Charles Cicchetti, retired chairman of the government, business and economy program at USC’s School of Policy Planning and Development.

The effect is likely to be broad, said John Silvia, chief economist for Wachovia Corp.

Los Angeles Times