Crude oil prices jumped beyond $50 a barrel yesterday, renewing concerns that sustained high energy costs will further weaken the U.S. economy.
The surge came after rebels in Nigeria threatened to interfere with oil production, upsetting a market already on edge over domestic supply disruptions in the Gulf of Mexico caused by Hurricane Ivan. Lost production and a decline in imports because of the storm led to a reduction in U.S. crude oil inventories.
At the close, U.S. benchmark crude oil for November delivery on the New York Mercantile Exchange stood at a record $49.90 per barrel. Adjusted for inflation, the price was still below its peak in 1981.
Oil trading has turned increasingly volatile as the thirst for oil in China and elsewhere has pushed production to its limits, leaving little ability to respond to sudden interruptions in supply. In the past year, the price of oil has soared 76 percent.
While analysts said they think prices eventually will moderate to the $30 range, they acknowledged that their forecasts could be thrown off by world events. The slightest disruption in an oil producing country -- or rumor of disruption -- jolts traders and causes them to bid up prices.
"In the environment we have today, noise gets prices," said Lawrence J. Goldstein, president of PIRA Energy Group, an international energy consulting firm. "If you hear something, you have to react to it and then find out if it's true or not."
If oil prices remain in the $50 range for several months, the repercussions could harm the economy. Employment likely would be further depressed, sapping overall consumer spending, many analysts said. Businesses that rely on oil could suffer losses and pass on costs to consumers.
"Fifty-dollar-a-barrel oil will keep the U.S. economy spinning its wheels but not gaining traction," said Richard A. Yamarone, director of economic research at Argus Research Corp.
U.S. economic growth slowed sharply in the early summer -- with the job market, consumer spending and industrial production all weakening significantly -- after oil prices rose above $40 a barrel in May.
The Organization of the Petroleum Exporting Countries, which generates about 40 percent of the world's oil, has failed in its recent efforts to bring down prices. OPEC lacks the ability to pump much more oil, analysts said, eliminating its most effective tool in cooling the run-up.
Saudi Arabia, the world's largest oil producer, yesterday announced that it has the ability to pump another 1.5 million barrels a day if customers request it. But some analysts doubted the kingdom's claims and said much of the additional oil was of a less-desirable grade.
In recent days, gasoline prices have edged higher, and analysts said they expected prices to increase more in coming weeks because of the run-up in crude prices. Regular gas averaged about $1.91 a gallon nationally yesterday, according to the AAA auto club. A gallon of gas remains below its peak in May.
During the summer, as oil prices rose, pump prices moderated, mostly because refiners had produced a heavy supply of gasoline.
In recent weeks, supplies of crude oil and diesel fuel have declined sharply, mostly because of the hurricane, which disrupted production and prevented tankers carrying oil from docking.
Trucking companies in particular are suffering from increasing diesel prices, which AAA reported were at a record, unadjusted for inflation, of nearly $2.02 yesterday.
United Parcel Service Inc., which buys both jet and diesel fuel for its fleet, saw its bill rise 28.5 percent, to $320 million, in the quarter ended in June, said spokeswoman Susan Rosenberg. The company has passed fuel costs on to consumers by adding a surcharge for air delivery.
The nation's airlines are reeling from the recent jet fuel increases. Rising fuel costs will add $6 billion to the carriers' expenses this year, according to the Air Transport Association.
Continued attacks on oil pipelines in Iraq and production problems elsewhere have helped push prices higher in recent weeks.
The latest area of concern is Nigeria, where militia members are threatening to declare war and attack petroleum operations. The country produces about 2.3 million barrels a day, or 3 percent of the world's crude oil output, but much of it includes the most sought-after grades.
Royal Dutch/Shell Group of Cos., which is active in the country, withdrew nonessential personnel from the Niger Delta, said Simon Buerk, a London-based spokesman for the company. Citing policy, Buerk would not say whether production in the country was reduced as a result of the personnel withdrawal.
In the United States, production remains significantly diminished because of hurricane damage. The Energy Department has allowed two companies to borrow oil from the nation's emergency stockpile, the Strategic Petroleum Reserve, to make up for shortages caused by the storm. The department announced yesterday that a third company, ConocoPhillips, would receive oil from the reserve totaling 1.5 million barrels.
But analysts said the oil released from the reserve was not enough to bring down prices.
After prices crossed $50 yesterday, the presidential campaign of Democratic nominee Sen. John F. Kerry (Mass.) said that President Bush had failed to do enough to bring down prices. Reed Dickens, a spokesman for the Bush campaign, dismissed the criticism, saying the Kerry campaign was "heavy on criticism and light on ideas."
Rising oil demand worldwide is the central element pushing the market higher. Cambridge Energy Research Associates forecasts the world's total demand at 82 million barrels per day, an average of 2.25 million barrels per day higher than last year.
James Burkhard, director of world oil analysis for Cambridge, said he expects prices to remain above $40 for the rest of the year, with fluctuations based on developments in oil-producing countries. "There's a lot of wild cards out in the market right now, and most of those wild cards are negative events which would spur continuing upward prices in oil," Burkhard said.
The impact on the economy of sustained $50 oil prices should not lead to a recession, said Yamarone of Argus Research. He and other economists foresee a slowing in the economy's growth rate at such prices, but not an outright decline in the nation's economic output. "But that doesn't mean it's not going to feel like a recession" to workers if the economy grows too slowly to prevent a rise in joblessness, he said.
Many forecasters predict the economy will grow between 3 and 4 percent next year but are ready to shave those figures by roughly one-half percentage point if oil prices stay around $50 a barrel, depending on a variety of factors.
"The longer it persists, the greater the danger," said Robert V. DiClemente, chief U.S. economist for Citigroup Inc. "The quicker prices rise and translate into final prices of products, the more damage they do."
But oil price increases cause nowhere near the same economic disruption as they did decades ago, when they frequently preceded recessions, because the U.S. economy is far more energy-efficient.
"Oil doesn't have the damaging effects it once had," DiClemente said. "But $50 oil is not $30 oil. . . . The economy could really prove disappointing if these prices continue."