Oil at $100 a barrel—does it matter?

Crude in the three digits is sure to be appreciated by the Persian Gulf states, Hugo Chavez, and oil producers everywhere. And it will certainly make a difference to FedEx, the airlines, and other businesses that are particularly vulnerable to higher fuel costs.

But oil at $100 will not matter to the United States economy, experts say, the way it did when oil was last at that level in 1980, following a decade of oil shocks, runaway inflation, and stagnant growth.

[On Thursday, oil touched a $100 barrel in trading on the New York Mercantile Exchange for a second day. After a report from the Energy Department showed that United State inventories of crude oil  fell by 4 million barrels last week—more than expected—oil futures  touched $100.09 a barrel. By early afternoon, oil retreated to $99.23 a barrel.]

[On Wednesday, a single trade caused oil to briefly touch $100 a barrel before it retreated to settle at $99.62, up 3.8 percent on the day.]

Oil prices had neared $100 in late November before retreating to below $90 a barrel. A year-end rally carried through into the new year, and prices were bolstered today by violence in the Nigerian oil region and expectations that United States data on Thursday will show a sharp drawdown in inventories.

Today's price is shy of the record of $101.70, adjusted for inflation, which was set in April 1980, according to the Paris-based International Energy Agency.

Still, a level like $100 is called a psychological threshold for a reason.

It's not just the prospect of more expensive gasoline and higher airfares. The surge in oil comes at a time when consumers are already worried about their jobs and their investments as the housing slump drags down economic growth and roils Wall Street. They have been hesitant to open their wallets as a result, and headlines about $100 oil will only make them more cautious.

A number of economists have said that a sharp cutback in consumer spending could tip the economy into a recession.

The surge in oil "comes at just the wrong time for consumers," Richard Berner, the chief United States economist at Morgan Stanley, wrote in November.

The combination of rising energy and food prices, he wrote, will drain more than $70 billion from Americans' nominal purchasing power in the last quarter of 2007.

James Burkhard, managing director of the oil and gas group at Cambridge Energy Research Associates, says that oil prices in the high $90s and at $100 and above have negative repercussions on consumer spending and that they are pushing "both the economy and geopolitics into uncharted waters."

Oil has been steadily climbing in recent years, fed by strong demand from China and other fast-growing economies and a wave of speculative money from hedge funds and other investors.

For many economies, oil at $100 a barrel will have less of an impact than it will in the United States because of the decline in the value of the dollar. Oil is priced in dollars, and most major currencies have risen sharply in value against the dollar in the last two years.

Still, many say that current prices on the world's oil markets are not sustainable. World oil consumption is expected to grow just 1.6 percent this year, to 87.s million barrels, according to the United States Energy Information Administration.

"In 2008, there is downside risk for oil prices because we do not think the global economy can sustain $100 without simultaneous economic growth in emerging and advanced economies together," Harry Tchilinguirian of BNP Paribas told Reuters today.

Cambridge Energy Research Associates estimates that oil prices would have to average $100 to $120 a barrel for six months to a year before it would have an impact akin to that in 1980.

The United States economy—thanks to improvements in technology, improved fuel efficiency, and faster growth elsewhere—is much less dependent on energy than it was during the Carter administration. Oil and natural-gas consumption accounted for almost half the amount per dollar of the gross domestic product last year than it did in 1980.

And despite the dent higher gasoline prices make on consumers' disposable income, energy accounts for a much smaller cost for the average American family than it did in the early 1980s. About 3.6 percent of take-home pay was spent on gasoline in 2005, down from 6 percent in the 1980s.

"At today's incomes, retail gasoline prices would have to reach about $5.50 a gallon before they took the same share of U.S. household budgets as they did in 1981," wrote Stephen Brown and Raghav Virmani in the October edition of the Federal Reserve Bank of Dallas's Economic Letter.

Gasoline prices now average about $2.97 a gallon nationwide, according to the most recent two-week Lundberg survey.

"The economy won't react unless we do," says David Wyss, chief economist at Standard & Poor's. "Energy isn't as big a deal as it used to be, and we'll gradually get used to the higher price level."