High Energy Bills May Add to Slowdown

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High Energy Bills May Add to Slowdown Tuesday January 2, 4:52 PM EST By Bernie Woodall NEW YORK (Reuters) - Cold weather, expected cuts in OPEC oil production and looming shortages of natural gas all threaten to add to the U.S. economic slowdown many expect this year, analysts said Tuesday.

"The higher energy costs, heating costs in particular, makes the prospects for consumer spending in the first quarter mediocre at best," said David Orr, chief capital markets economist at First Union Corp.

Energy price spikes have helped fuel the last three U.S. economic downturns, analysts say, including the crude oil, heating oil and gasoline price spikes in 1990-91 during the Gulf War. This makes economists wary of the high prices for fuel, led by unprecedented natural gas prices.

"The average household heating bill is likely to double this winter, increasing the stress on an already vulnerable consumer sector" of the U.S. economy, said a Goldman Sachs & Co. research paper.

The nation has been gripped so far by one of the worst winters it has seen in five years with year end snowstorms hitting the Northeast, and even the U.S heartland from New Mexico to Arkansas.

Domestic stocks of both heating fuels, natural gas and heating oil are about 25 percent below last year. But natural gas heats the majority, about 60 million of U.S. households, and with rising demand and largely steady production, analysts see natural gas prices remaining high all of 2001.

Christopher Low, chief economist at First Tennessee Capital Markets, said that energy costs will help keep economic growth to one percent or less in the first quarter of 2001, down from six percent to seven percent seen during robust recent years, he said.

"Energy prices have risen sharply over the past 18 months," a Goldman Sachs analysts research paper said. "This can be seen most clearly in the large gap that has opened up between the overall rate of consumer price inflation and the rate excluding food and energy."

First Union's Orr said that although energy costs may be higher, the more reliable indicator to consumer spending and consumer confidence is the national unemployment rate, which was 4.0 percent for November. He predicted that when national statistics are released Friday, December's unemployment rate will rise to 4.1 percent or 4.2 percent.


There was both good news and bad news Tuesday for recession watchers when it comes to crude oil and its products and the impact on consumer spending.

The bad news was that oil prices strengthened about 40 cents a barrel for U.S. benchmark West Texas Intermediate on the New York Mercantile Exchange (NYMEX) after news over the weekend that OPEC leader Saudi Arabia wants a crude production cut of 1.5 million barrels per day when the cartel meets on January 17.

This raised crude prices to $27.20 a barrel.

Still, this is down from the 2000 average of $30.20 a barrel for U.S. crude and down about 28 percent from the 2000 high of $37.80 in September.

Natural gas futures fell almost $1.411 on Tuesday, the first trading day of the year on the NYMEX, as forecasters called for milder temperatures in the nation's midsection.

Still, at $8.364 per million British thermal units (mmBtu), the price for natural gas is almost four times what it was on the first trading day of 2000, when it settled at $2.18 per mmBtu.

And higher natural gas prices have help to firm power prices nationwide, and boost the already high electricity prices in the West because many utilities use natural gas to run electricity plants.

"High energy costs have taken away from consumer spending as natural gas and electricity prices are higher but crude oil prices are lower than their highs" of 2000 and the new year will bring lower gasoline prices to counter higher household heating bills, First Tennessee Capital Markets' Low.


-- Martin Thompson (mthom1927@aol.com), January 03, 2001

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