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Spotty effects of costly oil
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September 22, 2000: 6:07 a.m. ET
Energy hogs will suffer while others go unscathed; inflation threat still uncertain
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NEW YORK (CNNfn) - Just about anyone who drives has already felt the pain at the pump in recent months. And homeowners in the Northeast are bracing for higher home heating prices come the first frost. But energy analysts had soothing words for those fearing the highest crude oil prices in a decade would usher in a period of inflation: if it happens, it won't happen just yet.
"If we see prices stay here, (around $35 a barrel) by the second quarter or maybe the second half of next year there will be a noticeable pass-through," said oil analyst Paul Cheng at Lehman Brothers in New York.
A lot has changed in the last 20 years in the way American companies go about getting their work done. The high technology revolution in the workplace has made many U.S. businesses a lot more efficient, and a whole lot less dependent on oil.
"Our economic dependence on oil is much less than it was even 10 years ago," said Fadel Gheit, an analyst at Fahnestock & Co. in New York. "If inflation comes, it won't be as big a hit as it was in the '80s."
One of Wall Street's most influential voices, Goldman Sachs analyst Abby Joseph Cohen, called fears over the highest oil prices in 10 years unfounded. The U.S. economy remains in good shape and, she said in a note to clients, oil prices should fade in the coming months.
What will Saddam do?
Though calmer voices reigned on the issue this week, the outlook for oil prices remains uncertain. Consider the multitude of factors that goes into predicting the price of oil. Will consumers respond to higher prices by finally cutting their intake of fuels? Is the United States going to be able to pressure the Saudis to increase production yet again at the risk of angering their OPEC partners? Will Iraq suddenly flex its international muscle and cease production?
Oil prices over the next few months will respond according to how these various factors play out. Gheit said he is keeping one eye on Iraqi leader Saddam Hussein as the oil drama plays out. Hussein, he said, could wreak international havoc on the oil market if he decides it is in his interest to cut production. In that, possibly the worst-case scenario, said Gheit, prices will shoot up again to even higher highs.
The Iraqi government isn't the only one that can push around its power and affect the price of oil. National security considerations aside, Cheng said the United States could force a big drop in the price, up to $8 a barrel, at least in the short term, if it decides to dip into its strategic oil reserves. President Clinton has been pondering that move and is expected to announce a decision soon on whether to use those reserves to ease domestic prices.
The strategic reserve, which was created for emergency use after the 1973-74 oil embargo and has been tapped only once before, during the 1991 Persian Gulf War, when 17.3 million barrels were sold.
Not everyone can be Michael Dell
Certainly, there are U.S. businesses, energy-dependent industries, which will be hit by soaring oil prices. Chemical companies, steel manufacturers and transportation businesses, like airlines, that will feel the effects more immediately than some.
The airlines at least, are having some success in passing on those costs to their customers. Four major U.S. airlines, Continental Airlines (CAL: Research, Estimates), American Airlines (AMR: Research, Estimates), Delta Air Lines (DAL: Research, Estimates) and United Airlines (UAL: Research, Estimates), announced earlier in September they would attach fuel surcharges of $20 per ticket to help cover the cost of high fuel prices.
The additional fees were the second such surcharge tacked on to airline tickets this year in response to higher fuel costs. Several airlines have also taken measures to hedge against higher fuel costs by negotiating set prices from suppliers. How successful they are in negotiating such deals varies from airline to airline so some are more vulnerable than others when it comes to higher fuel costs.
Other industries may not feel the pinch nearly so much. Merrill Lynch analysts today said they expected Dell Computers to meet third quarter expectations, which was taken as a sign that much of the high tech sector will not be dramatically affected by high fuel costs.
Energy policy on center stage
Regardless of the immediate prospects for inflation, high oil prices brought the often-overlooked issue of energy policy to center stage Thursday on the campaign trail.
Vice President Al Gore, on a campaign stop in Hollywood, Md., said President Clinton should take from the strategic reserves to help American consumers at the pump and at home. Gore, the Democratic nominee for president, said he supported taking 5 million barrels immediately and said he supported future draws from the reserve as needed to contain oil prices.
Home heating oil, expected to be much more costly this winter than last, "should be a simple, affordable necessity," said Gore. He scolded big oil for "profiteering" at the expense of consumers.
The Republican nominee, Texas Gov. George W. Bush, countered by calling Gore's plan one that threatened our national security.
Several groups, including the American Petroleum Institute, the National Association of Manufacturers, called on lawmakers to begin a thoughtful, thorough debate on energy policy. API said it supports government programs to help lower and middle-income families heat their homes, but added that a comprehensive energy strategy would help guide the United States in the future. 
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