Oil prices are hovering near multi-decade highs as gasoline prices remain high. And analysts worry that the high costs will eventually hamper economic growth.
The Schork Group calculates that if crude oil holds above $125 a barrel – with the possibility of reaching $150 a barrel – then gas prices would be $5 a gallon down and up to $5, $25. These levels would mark a new all-time high, even after adjusting for inflation. Historically, gasoline prices of $3.60/gallon to $3.70/gallon were the inflection point of demand destruction.
Retail sales data for the month of February revealed gas station sales accounted for nearly all of the year-over-year growth, at a time of year when demand is typically the weakest.
“What we paid at the pumps in February was 5.3% higher. If you take those sales out, last month’s retail sales actually fell. So clearly we’re at a point where consumers are now starting to feel the impact of these higher energy costs,” Stephen Schork, Schork Group Director, told Yahoo Finance Live. “The increase we are currently seeing is unprecedented. If we push north of $125 crude oil, we will start to see demand drop. »
Director of Vectis Energy Partners, Tamar Essner, recently told Yahoo Finance Live that “It’s not just oil prices that are high, but natural gas prices, energy prices, agricultural prices and food. It is therefore potentially more damaging if [oil] prices remain at these levels”
Pressure on consumer commodity prices, such as oil and gas, is also impacting jet fuel costs in the transportation and airline sectors ahead of the summer travel season. Businesses are already anticipating the need to pass on higher operational costs to consumers for the production of goods and services.
The Federal Reserve is now prioritizing price stability as abnormally high oil prices are holding back economic recovery from the COVID-19 pandemic. Following the March central bank meeting and monetary policy decision, Fed Chairman Jerome Powell publicly acknowledged that rising oil and commodity prices had led the committee to reassess its GDP growth forecasts. Despite current oil prices, Powell maintains that “the likelihood of a recession over the next year is not particularly high.”
“We’re seeing consumers take a real shock from the stickers,” Essner said. “The question is, is this sticker clash translating into real demand destruction?”
Bradley Smith is an anchor at Yahoo Finance. Follow him on Twitter @thebradsmith.
Read the latest financial and business news from Yahoo Finance
Follow Yahoo Finance on Twitter, Facebook, instagram, Flipboard, LinkedInand Youtube