Gas price impacts feared

By John Duchemin
Advertiser Staff Writer

A sharp increase in fuel prices has Hawai'i economists, businesses and consumers worried about higher driving costs, eroded profits and slower economic growth.

Rising world oil prices caused by a series of temporary disruptions to the fuel supply network have pushed up gasoline prices about 12 percent in Hawai'i since mid-December, to near-record levels.

Economists say rising fuel costs are never good; if they last long enough, they tend to weigh down economic growth. And this increase seems likely to last at least several more months.

Gas prices have been as high before and quickly dropped off, but this time analysts expect them to stay high through April, possibly into the summer, because of global factors.

"There's always worry about energy price spikes, because basically every recession in recent history is associated with an energy price increase," said University of Hawai'i economics professor Byron Gangnes. "Oil is ubiquitous. It goes into everything. So a spike in oil prices has the same effect as a general tax on economic activity."

Oil prices have been rising since a national strike in Venezuela, one of the main U.S. suppliers of crude oil, disrupted the flow of crude imports late last year. Refiners have to look elsewhere and pay more for oil, and the costs ripple down to consumers, airlines, taxicabs and ground and ocean transportation companies.

Prices are also under pressure because of speculation that a war with Iraq will disrupt the flow of oil from the Middle East. The price of crude oil hit a 12-year high in early March, Bloomberg News reported.

Much of the oil used in Hawai'i comes from relatively nearby sources such as Alaska and Indonesia, not the Middle East or South America. But oil from those sources is in higher demand if capacity drops elsewhere, and prices for Hawai'i's principal suppliers have risen.

Typically, a sharp rise in fuel prices is followed by a decline as oil-producing nations increase production to take advantage of higher prices. That causes demand to fall off and drives prices back down.

Currently, however, many oil-producing nations are at near-maximum production capacity as they try to compensate for the Venezuelan strike. Spare capacity is not readily available to flood the markets with cheaper fuel, though blizzards in the U.S. Midwest and Northeast have kept many drivers off the roads and alleviated some demand.

The capacity problem and threat of war in the Persian Gulf have some analysts predicting an abnormally long cycle. The bottom line: Expect higher prices to last awhile.