The average price of gasoline, as reported by the US Department of Energy has jumped to over $3.00 per gallon. Compared to a year ago, this price increase means that filling up a 16 gallon tank has risen $7.20 from last year, to $48.80. This price increase is unusual for the wintertime, as consumers usually drive less during these snowy months. It primarily reflects increased demands from developing nations.
Coupled with the increasing price of Crude Oil, which is comfortably over $90 a barrel, these rising fuel costs could begin to hinder the already unsteady economic economy. Consumer spending is already expected to decrease after a robust holiday shopping season. Additionally, one of the positive effects of increased oil prices is commonly said to be increased purchases of newer, more efficient or hybrid vehicles. I doubt this will have much of an effect because of the Cash for Clunkers program, which may have already met this demand. If energy prices continue to rise, expect economic recovery to be ever weaker than previously predicted. Additionally, the public’s memory of the Deepwater Horizon spill may be clouded when they are shelling it out at the pump.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.