Crude oil prices soared yesterday to nearly $49 a barrel, heightening concerns that sustained high energy costs could drag the slowing U.S. and world economies into a more serious downturn.
With growth slowing in China, Europe and Japan, some economists worry that rapidly escalating oil prices will trigger a self-reinforcing spiral of falling demand in the U.S. economy and among its trading partners.
"The economy is near its tipping point," Stephen S. Roach, chief economist for Morgan Stanley, said yesterday. He said the nation would likely fall back into recession if oil prices hover near $50 a barrel for three to six months.
"This is an oil shock, absolutely," Roach said, noting that yesterday's closing price was 68 percent higher than the roughly $29 per barrel average that had prevailed since early 2000. "The oil price is high enough to make a real difference to a vulnerable U.S and global economy."
Roach and other economists also agree that oil prices could reverse and fall suddenly if the market psychology changes, which would give a boost to the U.S. economy, and in turn the rest of the world.
Oil prices have been climbing for months because of rising global demand and fears that supplies could be disrupted by terrorist acts in the Middle East and a legal dispute involving Russia's largest oil producer.
But the pace has quickened in recent weeks as events that would command little notice in a calmer environment fed expectations of rising prices. They were then fanned higher by feverish speculation among traders in the oil markets.
Benchmark U.S. crude oil for September delivery closed at $48.70 on the New York Mercantile Exchange yesterday -- a record since trading began in 1983 -- after surpassing $47 per barrel the day before and exceeding $46 per barrel for the first time on Friday.
"The speculators have totally, totally run away with this market," said Fadel Gheit, senior energy analyst with Oppenheimer & Co. "It is no longer driven by any resemblance to sanity or fundamentals."
The markets have pushed prices higher in reaction to any report of a threat to production. Yesterday, for instance, some traders became alarmed at news that rebels set the offices of an Iraqi oil company on fire. But prices have not retreated significantly in reaction to news that bodes well for production, such as the relative calm that has been maintained during Venezuela's recent presidential recall referendum.
Voters rank the economy among their top concerns, and the presidential campaign of Sen. John F. Kerry (D-Mass.) yesterday blamed record oil prices on President Bush's economic policies.
"The Bush administration seems confused about what records it should be setting during the Olympics," Phil Singer, a Kerry campaign spokesman, said in a statement. "You don't get gold medals for record oil prices, record deficits or record health care costs. This is what happens when you have a White House that lacks a viable strategy for the economy or reducing our dependence on Middle Eastern oil."
Treasury Secretary John W. Snow countered by calling on Congress to pass the president's energy bill to make the economy less dependent on foreign oil, according to the text of a speech he delivered to workers in Missouri.
"The price of oil is causing an economic headwind," Snow said. "The president's plan will lead to lower costs and that's very important for our economy."
Adjusting for inflation, the price of oil remains far below a 1981 peak, when the level was equivalent to more than $72 a barrel in today's dollars, said John C. Felmy, chief economist at the American Petroleum Institute, an industry group based in Washington.
But higher prices have rippled around the globe, as forecasters from Wall Street to Brussels to Seoul trim economic growth estimates.
"Europe is looking pretty fragile right now anyway, so this oil price shock comes at a bad time," said Jonathan Hoffman, chief European economist at Royal Bank of Scotland Financial Markets, according to an Associated Press report. "We are in a different world than what we used to be. . . . Who knows what al Qaeda is doing in Saudi Arabia?"
Meanwhile, higher prices sting U.S. consumers and businesses in a variety of ways.
Americans were paying an average $1.87 yesterday for a gallon of regular gasoline, 15 percent more than a year ago, according to the AAA auto club. Even with rising oil prices, U.S. gasoline prices have slipped from their highs this year in May because of ample supplies relative to domestic demand.
If the price of oil hits $50 a barrel, U.S. households will see their weekly costs rise by an average $14.80 per family, according to a recent study by the National Energy Assistance Directors' Association.
Higher diesel fuel prices raise truckers' costs to haul automobile parts, milk, furniture and other goods from one place to another. Trucking companies increasingly are passing those costs on to other companies.
Action Express Inc., a trucking company based in Milwaukee, is tacking a 7 percent surcharge onto its shipping bills, said Peter Gerasch, the firm's operations manager. On a typical haul between Milwaukee and Detroit to deliver auto parts, that means a surcharge of about $90 a load, he said.
"It makes it more expensive to run loads," Gerasch said. "Pretty much you pass it on, pass it on, pass it on."
Truckers have not been able to pass on all their higher costs, said Bob Costello, chief economist of the American Trucking Associations.
"It hurts," Costello said.
The money-losing airline industry is paying higher prices for jet fuels but is prevented by fierce competition from raising fares to compensate.
United Parcel Service Inc., the delivery company that operates a fleet of 88,000 vehicles and 270 aircraft, is paying more for both diesel and jet fuel.
The company adds a surcharge for express packages delivered by air, and it has been raising the surcharge steadily, said Susan Rosenberg, a company spokeswoman. It plans to lift it to 8.5 percent next month.
UPS has been working to hold down costs by buying fuel in bulk and dispatching its fleet more efficiently, she said.
Staff writer Jonathan Weisman contributed to this report.