'US economy 'in danger zone with oil price'

Reuters | August 3, 2007

Near record high crude oil prices have put the US economy in the "danger zone" and the world's producers must boost supply to prevent shortages, US Energy Secretary Sam Bodman has said.

Sustained US crude oil prices near the $US80 ($NZ105.79) level could harm the US economy, and both Opec and non-Opec producers should "look at what the facts are," Bodman told reporters.

"We're in a. . . danger zone right now, so that's why I hope that both Opec and non-Opec nations will look carefully at the facts," Bodman told reporters.

It was one of the strongest warnings from a Bush administration official to date on the impact of high crude oil and gasoline prices, which are already starting to take their toll on US consumer spending.

US crude oil futures on Wednesday hit a record intraday high of $US78.77 a barrel, surpassing the previous peak of $US78.40 set in July 2006. The benchmark US oil contract settled up 33 cents at $US76.86 on Thursday.

Bodman said that so far high oil prices have only had a "modest" impact on the US economy. But Bodman said he was concerned about the economy's ability to bear up under sustained oil prices near the $US80 level.

"I am concerned that where we are operating, in the ranges that we're talking about now where you are approaching $US80," Bodman said.

Despite rising calls from the United States and the International Energy Agency – advisor to 26 industrial nations – Opec officials so far say the producer group will not hike output.

Qatar's Oil Minister Abdullah al-Attiyah said today that Opec – which pumps about a third of the globe's oil – can do nothing about the high price of oil and that there is no shortage of crude in the market.

Bodman said that a spate of US refinery outages that slowed US gasoline production are no longer to blame for rising crude oil prices, with the nation's refineries running at more than 93 per cent of capacity.

"We can no longer explain (high oil prices) here in this country on the basis of refinery problems," Bodman said.

"So I merely hope that the Opec people, as well as non-Opec nations, make a judgment to look at what the facts are," he said.

There are rising signs that US gasoline pump prices near $US3 a gallon are starting to dent consumer spending.

The US Federal Reserve, in minutes from its late June meeting released on July 19, said personal consumption expenditures are rising more slowly "at least in part" because of rising gasoline prices.

And Wal-Mart, the world's largest retailer, on July 12 linked modest merchandise sales growth in June and early July to high gasoline prices.

"Consumers continue to be challenged financially, with more pressure on discretionary spending," said Eduardo Castro-Wright, CEO of Wal-Mart's US operations. "Gas prices have moved to be their chief concern."

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