Fuel prices raise concerns, but so far this is no repeat of 2008

Analysts are concerned that high oil prices and the run of of record level gasoline prices this spring could derail the U.S. economic recovery. But so far there are still some important differences between 2012 and 2008, when soaring energy prices helped tip the nation into recession.

Among those expressing concerns was Fadel Gheit, senior energy analyst for Oppenheimer & Co., who raised them in a note to investors today.

“Oil prices are inflated by more than 30%, driven by excessive speculation on increased fears of supply disruptions from the Middle East in the event of military strikes against Iran’s nuclear facilities,” Gheit said. “A prolonged military conflict could spill over the region, disrupt oil supply and send crude oil prices to record high levels, which could push the global economy into a deep recession.

“Gasoline supply has tightened in recent months as a result of refining capacity shutdowns and increased U.S. gasoline exports to record high levels,” and prices could rise even higher if there are further refinery shutdowns, Gheit said.

“High gasoline prices usually lower consumer confidence, reduce discretionary spending and slow down the economy,” Gheit said.

But the Oppenheimer analyst and Phil Weiss, a senior energy analyst at Argus Research, also pointed out some important differences between the current situation and 2008.

Then, as now, U.S. demand for gasoline was weak and dropping, but this year, lower petroleum demand is partially explained by ethanol making up a higher pencentage of every gallon of gasoline.

It’s also partially explained by the purchase of higher-mileage vehicles. That’s backed up by a recent analysis by Michael Sivak, director of Sustainable Worldwide Transportation at the University of Michigan’s Transportation Research Institute. Sivak found that new vehicles purchased in February, for example, were rated as capable of 23.7 miles per gallon, up from 20.4 in February of 2008.

Also, there are so far no indications that oil prices, while relatively high, will approach the record of more than $147 a barrel reached in 2008.

Finally, because of a boom in U.S. natural gas production, there is such a glut on the market that prices are running at about $2.30 per million British thermal units, rather than the $13-plus levels in 2008. Also, the relatively mild winter has contributed greatly to lower demand for both heating oil and natural gas.

“There are reasons to be concerned about the current fuel prices,” Weiss said, “but there are many important differences that suggest we are not seeing a repeat of 2008.”

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