High Oil Prices Siphon Profits from US Firms ; Everyone from Airlines to Paper Companies Feels Pinch as Oil Nears $40 Barrel

By Ron Scherer writer of The Christian Science Monitor | The Christian Science Monitor, September 21, 2000 | Go to article overview

High Oil Prices Siphon Profits from US Firms ; Everyone from Airlines to Paper Companies Feels Pinch as Oil Nears $40 Barrel


Ron Scherer writer of The Christian Science Monitor, The Christian Science Monitor


Jim Simon of Hudson, Fla., always wanted to own his own semi. So, this March, he bought a red 1982 Ford LTO 9000-loaded with a microwave, full-size bed, and more drawer space than he has at home. But now the beloved truck is for sale - a casualty of the high price of oil.

"We have to park it, or we'll lose everything," says Julie Simon, his wife. "After we get through with fuel costs, we're not making anything."

Mr. Simon is not alone. With the price of oil remaining high, big energy users like semiconductor manufacturers, paper companies, and airlines are feeling the pinch. For some, their energy costs have risen to the point that they are faced with the unpleasant prospect of either raising prices or reducing their operations.

"Costs are going up, it's not just the consumer who's feeling it," says David Wyss, chief economist for Standard & Poors DRI in New York.

Although the higher energy prices have not worked their way into the consumer price index yet, government officials are worried. Recently, US Energy Secretary Bill Richardson said oil prices are "dangerously high."

With oil prices closing in on $40 a barrel, President Clinton says he's looking closely at the prospect of opening up the Strategic Petroleum Reserve (SPR). This would help to relieve some of the political pressure, although it's not clear what impact it might have on the world price.

"It could knock the price down, as long as OPEC does not reduce production," says Mr. Wyss.

However, the political heat is rising. Next Tuesday, the Senate Energy Committee will hold hearings with Secretary Richardson and other energy experts. Governors are also worrying about the coming winter. Yesterday, Gov. Bob Taft of Ohio and Gov. Tony Knowles of Alaska held an energy summit in Columbus, Ohio, with natural-gas producers to talk about the high prices.

"We're going to have a winter that will be a challenge for all of us," says Governor Taft.

For many businesses, it's already a challenge. Take the chemical industry, which consumes about 6 to 7 percent of all the energy used in the United States. Basic energy costs are up about 60 percent over last year, calculates Kevin Swift, chief economist for the Chemical Manufacturers Association. "I'm starting to hear grumbling," says Mr. Swift.

Normally, the industry would raise prices to recoup its higher costs. And to some extent, it has. The price of plastics has risen 21 percent over last year.

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High Oil Prices Siphon Profits from US Firms ; Everyone from Airlines to Paper Companies Feels Pinch as Oil Nears $40 Barrel
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