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Sharp Rise In Oil Prices Could Hinder Recovery
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Sharp Rise In Oil Prices Could Hinder Recovery


Sharp Rise In Oil Prices Could Hinder Recovery
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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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And rising demand from China may be one reason crude-oil prices took a sharp jump recently. A barrel now costs nearly $90 - more than double the price two years ago. Now, there are worries that higher prices could hurt a recovering economy.

From Denver, Colorado, NPR's Jeff Brady has more.

JEFF BRADY: At the Magic Rabbit Car Wash, there's also a convenience store, one of those quick oil-change shops and gas pumps out front. Normally, this is a good time of year for owner Kevin Leung, because gas prices usually go down after the summer driving season.

Mr. KEVIN LEUNG (Owner, Magic Rabbit Car Wash): A lot of gas stations, they do not change the price down that quickly, and that's how we can pocket the difference.

BRADY: Leung says the extra few-cents-a-gallon profit is a nice bonus. But oil prices are going up, so that dynamic is actually working against him this year. Leung can blame the Federal Reserve, in part. Last week, the Fed said it will buy $600 billion in government bonds to boost the economy. A healthier economy would mean people will buy more gas, and that's pushing up the price.

Gary Taylor is a principal with the Brattle Group, and he says oil futures appear to be settling in around $85 to $90 a barrel. But that's not because traders know that's where it'll end up.

Mr. GARY TAYLOR (Principal, Brattle Group): When they don't know, they kind of expect more of the same. So the fact that the markets right now are kind of seeing $90 oil out there for the foreseeable future, that's just because they don't know where things are going to go.

(Soundbite of laughter)

BRADY: Taylor says if the higher prices do stick around, that could hinder a fragile economic recovery.

Mr. TAYLOR: You know, a $10 increase in the price of oil is like a $200 million tax on the economy a day.

BRADY: That's $80 billion a year.

(Soundbite of vacuum)

BRADY: Back at the Magic Rabbit Car Wash, Kevin Leung worries if customers spend more money on gas, they'll have less to spend on luxuries like a $10 car wash.

Mr. LEUNG: They don't have that money anymore, because all their money is going in to fill up the tank. Unfortunately, I don't make that $10.

BRADY: Since more than 60 percent of what you pay for gas is for the crude oil it's derived from, much of that extra money will go to large oil companies. Many of them already are reporting profits much healthier this year than last, thanks to higher oil prices.

Jeff Brady, NPR News, Denver.

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