Oil’s Rise Shows No Sign of Slowing

The price of oil rocketed to a record $56.46 a barrel Wednesday, raising fears that the U.S. economy could weaken as energy takes a bigger bite out of business and consumer spending.

On a day when Wall Street and Washington were dominated by energy, the price jump bolstered prospects of oil at $60 -- or even higher -- and offered no relief for motorists paying near-record prices at gasoline pumps nationwide.

“Prices are out of control,” said Victor Hernandez as he filled up his 1997 Nissan Maxima at a Mobil station near his Echo Park home where regular was selling for $2.33 a gallon.

Lofty oil prices are taking a toll on a number of industries as businesses and consumers dig deeper to pay for fuel.

Airlines, truckers and railroads are hurting, the public’s interest in gas-guzzling sport utility vehicles is waning, and discount retailers say that budget-conscious patrons have less cash for shopping.

“A lot of our customers have to make choices when they buy things,” said Marty Heires, spokesman for Wal-Mart Stores Inc. “When the cost of gas rises they have to decide what they can do without. That affects us.”

President Bush said he was “concerned about the price of energy” and “what it means to the average American family.”

But oil’s historic rally helped the president score a major victory Wednesday. The Senate narrowly passed a Republican-backed bill to open part of the Arctic National Wildlife Refuge in Alaska to oil and natural-gas exploration, something long opposed by environmentalists.

The overall U.S. economy so far has escaped serious harm from surging energy costs. Though they have clipped U.S. economic growth by up to one-half percentage point during the past year, by some economists’ estimates, the economy still grew at a healthy 4.4% pace and many analysts predict continued expansion.

“It’s not like you’re seeing an environment in which business confidence is very weak,” said Richard Hoey, chief economist at investment firm Dreyfus Corp., noting that corporate profits generally “are at record levels.”

Still, the stock market showed concern Wednesday. The Dow Jones industrial average tumbled 112.03 points, or 1%, to 10,633.07 after oil prices reached their new highs. The market also was weighed down by General Motors Corp., which slashed its profit forecast in part because of slumping North American sales of SUVs in the face of rising gasoline prices.

On the New York Mercantile Exchange, crude oil for April delivery rose $1.41 to a record $56.46 a barrel, after trading as high as $56.50 during the day. The previous closing high was $55.17, set twice last October.

Wednesday’s closing price was 51% higher than a year ago.

Analysts agree that a chief reason for the upward pressure is the seemingly insatiable demand for oil and gas -- especially in the U.S. and China -- and tight supplies that strain to meet that need.

The price of oil still remains below its all-time high when inflation is taken into account. After the February 1979 Iranian revolution, oil prices traded between $80 and $90 a barrel in today’s dollars.

That’s little consolation to California’s $30-billion agriculture industry, which recently has seen prices soar for diesel fuel for tractors and irrigation pumps as well as for the fertilizers, pesticides and other farm chemicals produced from oil.

“These are costs we have no ability to control,” said Bart Fisher, who farms 10,000 acres of cotton, alfalfa, fruit and vegetables in Riverside County’s Palo Verde Valley.

Even OPEC seemed powerless, for now at least, to stop oil’s upward spiral.

The Organization of the Petroleum Exporting Countries agreed Wednesday to boost its official production ceiling by 500,000 barrels a day, or 2%, to 27.5 million, in an effort to brake the rise in prices. The cartel, meeting in Iran, gave its president the authority to increase production by an additional 500,000 barrels a day if prices don’t fall.

“The current level of prices around $55 a barrel is too high,” Saudi Arabian Oil Minister Ali Ibrahim Naimi told the Saudi-owned newspaper al-Hayat, according to the Platts energy information service.

But traders ignored OPEC’s move, noting that it was largely symbolic because the group -- which supplies more than one-third of the world’s oil -- already is pumping about 700,000 barrels a day more than its official quotas call for and doesn’t have much spare capacity left.

The markets instead seized on the U.S. government’s latest energy report Wednesday, which showed a drop in domestic gasoline supplies.

“You’ve got a market that’s really focused on demand, and it doesn’t matter what OPEC does in the near term,” said David Pursell at Pickering Energy Partners in Houston.

The price jump also reflected sheer market momentum, some analysts said, as institutional investors have poured money into oil, gasoline, heating oil and other commodities to profit from the rally -- lifting market prices even higher in the process.

Saudi Arabia and some other OPEC members are concerned that if prices get too high, the economies of consuming nations will be so damaged that demand for OPEC oil will turn lower.

Thorsten Fischer, senior economist at Economy.com, said that in the U.S., while “we will see some slowing in growth, the economy is in such a good shape there is no fear of a recession.” But others said time might change that.

“High energy prices are kind of like walking around with a heavy weight on your foot,” said Steven Wood of Insight Economics in Danville, Calif. “Eventually, it gets so heavy that when you keep trying to pull it along you trip and fall over.”

The U.S. average price for self-serve regular was $2.053 a gallon Wednesday, just shy of the record $2.054 set May 26, according to the auto group AAA. (An Energy Department survey conducted Monday put the average at $2.056.) The California average on Wednesday was $2.32; the state’s record is $2.446, which was set Oct. 21, AAA said.

Adjusted for inflation, gasoline was more expensive in 1981, when U.S. and California average prices peaked at about $3 a gallon in today’s dollars.

When gasoline prices shot up last year, some retailers like Wal-Mart Stores Inc. experienced weak sales and blamed the declines in part on prices at the pump.

“Rising gas prices eat into that disposable income we all have, especially for those budgeting paycheck to paycheck, like the Wal-Mart customer,” said Patrice Duker, spokeswoman for the International Council of Shopping Centers, a trade group.

Airlines, shippers and railroads have tacked surcharges on their prices to help cover fuel bills that have soared 40% or more over the last year. But the fees don’t offset the whole increase.

“You’ll find a lot of businesses eat the [remaining] cost just to stay competitive, and that’s what we do,” said John Bromley, a spokesman for Union Pacific Corp., which owns the nation’s largest railroad.

Motorists will continue to feel pain at the pump just as the nation heads toward the busy summer driving season, the Energy Department said Wednesday.

That’s put a damper on the social life of music producer Arkady Litvak. As he filled up his Nissan Altima at the Echo Park Mobil station, Litvak said he wasn’t visiting as many Los Angeles-area nightclubs as before.

“I’m definitely more choosy about where I drive,” he said.

Times staff writers Rong-Gong Lin II, Debora Vrana and Jerry Hirsch contributed to this report.