Dr. Fariborz Ghadar explains why he thinks oil prices are headed higher, and details the consequences to various business sectors in MarketWatch:
American Airlines reports that a 1 cent increase in the price of a gallon of jet fuel, for example, translates into an additional $33 million in annual costs. Once oil prices go over [$100/barrel], we can expect that to cause a ripple effect: lower profits, fewer flights, higher ticket prices, layoffs of personnel, and cutbacks in new aircraft or part orders. Some airlines will simply collapse.
Higher oil prices reduce consumer spending power as more income is used to fill gas tanks, making less money available for clothing, household items, electronics, vacations, and entertainment. Automobile manufacturers can expect to see drops in sales of SUVs, light trucks and vans. Although some consumers are likely to switch to smaller cars, we can expect to see production cutbacks and layoffs across the automobile sector.Cruise lines and other tourism industries will feel the pinch when higher oil costs translates into cancelled vacations. Hotels, restaurants and other tourism industries will experience a sharp reduction in revenue.Chemical companies will need to locate in low cost energy locations simply to remain competitive, transportation companies will cancel services or raise prices to keep delivery schedules.Strategists in corporate boardrooms need to re-examine their assumptions on how increases will impact business and company profits. It is not a matter of will oil reach $100 a barrel, but when.