Gas prices hit record high for tenth straight day

Though American drivers are feeling pinched, consumers in some parts of the world would consider U.S. gasoline cheap. Thanks to heavy taxes, European drivers pay much more. In Norway, prices recently toped $7 a gallon. Taxes can make up more than two-thirds of the pump price in some European countries.

But drivers in some Asian and Middle Eastern countries get off easier at the pump -- thanks to heavy government subsidies that keep gasoline below world market prices. In Iraq, where you’ll find the world's cheapest gasoline, you can top off for as little as 5 cents a gallon, according to a recent report by the International Monetary Fund. Last year, the Iraqi government spent some $3 billion on gasoline subsidies, an expenditure the IMF says threatens the country’s fragile Iraqi economy. 

Other countries that subsidize gasoline have gradually begun lifting prices. China raised prices by 4.5 percent in June to $1.63 a gallon. India also raised retail gasoline and diesel prices in June, the first increase since last November.

In the U.S., higher gasoline prices have begun to weigh on the economy. On Thursday, a widely-watched gauge of future economic activity rose a just 0.1 percent in July, a sign that higher oil prices are beginning to hurt the economy's growth prospects. On Wednesday, the government reported that wholesale inflation in July took its biggest leap in nine months in July, due in part to the hit consumers are taking at the pumps.

Shoppers hit with high gas prices are apparently beginning to cut back elsewhere in their family budgets. Earlier this week, Wal-Mart its second-quarter revenues fell short of forecasts and the retail giant put part of the blame on higher gasoline prices cutting into its customers spending power. Wal-Mart also warned that earnings for the third quarter would be below analysts’ forecasts.

“I worry about the effect of higher oil prices,” said Wal-Mart chief executive Lee Scott.

Winter chill?
And while gasoline prices may ease up a bit when summer demand cools, many homeowners face sharply higher home heating bills this winter. Natural gas prices have nearly doubled -- wholesale prices jumped to $9.73 per million btus this week, up from $5.13 this time a year ago while heating oil prices jumped nearly 19 cents to $1.88 a gallon, up 69 cents from a year ago.

That big jump is making it tough for heating oil dealers to lock in winter contracts with their customers. Most dealers begin offering a fixed price through the winter, but the recent run-up has made it difficult to predict where prices will be  six months from now. Customers who lock in now risk seeing prices pullback, and paying more than they should.

"It's a horrible year. It's ridiculous," said Ron Trinks, who with his wife, Dee, runs Trinks Brothers Oil in South Windsor, Conn.

A lot depends on how cold the weather is this winter. Heating oil inventories are in pretty good shape for this time of year, according to Energy Department figures. But a prolonged cold snap could stretch supplies, touching off further price rises this winter.

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