Consumers likely to shake off rising cost of oil

Some analysts predict gas prices could rise as high as $3.50 to $4 a gallon next summer. And the Energy Information Administration predicts gas prices will set a new record national average above $3.40 a gallon this spring.

Many consumers have found ways to cope with higher energy costs.

James Ersery, of Chicago, commutes by bus to his job as a letter carrier for the U.S. Postal Service, so he’s not being hit hard by higher gasoline prices. But at home, he turns down the thermostat when he’s away.

Still, he shrugged off oil’s rise.

“Prices have been extremely high for quite some time,” he said.

Barbara Binik, a Realtor in Chicago, said that while higher prices haven’t significantly altered her spending habits, a larger percentage of her disposable income is going toward gasoline, and “you feel it. It’s out of whack.”

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She has cut back in small ways so far, such as by using a cheaper drive-through car wash instead of an automated one and eating out less. “I’m more careful about my spending.”

Some analysts predict oil will continue to rise in the futures market, and if that’s the case, $100 crude might sow the seeds of its own destruction. Many analysts believe higher prices will hurt demand, eventually.

“We think it important to keep in mind that all of the economic consequences of $100 crude are bearish, not bullish” for prices, Tim Evans, an analyst at Citigroup Inc. in New York, wrote in a recent research note.

Oil prices have risen in recent years as booming economies in China and India have grown exponentially and fed the perceptions that global crude supplies are not rising fast enough to meet demand.

Political problems and labor strife in oil-producing areas have also fed oil’s upward momentum. In Nigeria, political upheaval has cut oil supplies from Africa’s biggest producer by 587,000 barrels a day since the end of 2005, according to Energy Information Administration estimates. Renewed violence in Nigeria helped send crude to $100 Wednesday.

Any news about Iran’s disputes with the West and conflict between Turkish armed forces and Kurdish rebels in northern Iraq has also sent crude soaring.

However, oil has also been pushed higher by speculators, who have come to see oil as an investment play as the dollar has weakened in recent months. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are also more attractive to foreign investors when the greenback is falling.

That has some analysts concerned that shift in speculators’ strategy could just as easily send oil prices tumbling.

“We are still leaving open the possibility of a major price downdraft prior to month’s end,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill., in a Wednesday research note.

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