Several analysts have predicted oil prices to average 5 a barrel during 2008. Many experts anticipate that tight domestic refining capacity will push gasoline prices higher in the spring, possibly close to last May's record of .227 a gallon.

New York ? Oil’s run to nearly $100 a barrel last year boosted the cost of travel, clothing, beauty products and milk, and many analysts think fuel prices will remain at historically lofty levels throughout 2008.

But record energy prices could sow the seeds of their own destruction. Along with the housing crisis, they are contributing to an economic slowdown that is sapping the country’s energy appetite just as oil producers ramp up production.

“The cure for high prices is more high prices,” said Tim Evans, an analyst at Citigroup Inc., in New York.

That doesn’t mean oil will plummet – unless there’s a severe recession, said Evans, who expects prices to hover near $70 a barrel. In the face of such forecasts, OPEC could decide to cut production, as it did in 2006, to keep prices from falling too low.

Other factors also will keep a relatively high floor underneath prices. Demand is expanding in China, India and the Middle East. And political upheaval in oil-producing countries such as Iran, Iraq and Nigeria has sparked worries about possible supply disruptions. These concerns have prompted banks and hedge funds to make big bets on oil – investments that put further upward pressure on prices.

Impact on economy

Several analysts have boosted their average oil price forecasts for 2008 – $75 a barrel is a common prediction. And many expect tight domestic refining capacity to push gasoline prices higher in the spring, possibly threatening last May’s record of $3.227 a gallon.

But there already are signs that the gargantuan 6-year, 270 percent run-up in crude prices is having an impact on consumers and businesses, and that could curb the growth in demand.

A typical family spends 3.8 percent of its income fueling a single vehicle, up from 1.9 percent in 2002, according to the Oil Price Information Service. That’s not a huge percentage, but combined with increases in prices of other energy-dependent goods and services, a family’s income takes some significant hits.

Prices of consumer goods such as meat and milk also are higher these days, in part due to skyrocketing energy costs that are taxing American farmers. The cost of corn, used to feed cattle, is rising due to demand from the ethanol industry. Transportation costs are rising, as is the cost of plastic bottles and rubber tires, which are made from crude.

The rising cost of petrochemicals – to say nothing of shipping – is driving up the price of all kinds of consumer goods. For example, lipstick and other makeup derived from oil are up 7 percent in price over the past 12 months, according to Marshal Cohen, chief analyst at NPD Group in New York. Clothing prices have risen 3 to 5 percent over the same period, Cohen said, with synthetic-based apparel rising fastest.

Oil prices have fallen 11 percent since peaking at $99.29 a barrel on Nov. 21, in part because the Organization of Petroleum Exporting Countries has boosted output. The cartel raised production quotas by 500,000 barrels a day on Nov. 1.

Energy efficiency

While soaring energy prices are squeezing U.S. economic growth, their impact has been blunted by efficiency gains.

Lester Lave, professor of economics at Carnegie Mellon University’s Tepper School of Business, notes that since the oil shock of the early 1980s, America has halved its energy use per unit of gross domestic product. The economy is less dependent on manufacturing, and car, plane and truck engine technology has improved, letting consumers and businesses to get further on less fuel. Efficiency also has been gained in areas such as home heating.

“We’ve become a much more energy-efficient economy than we were in the past,” Lave said.

Overall spending on energy stands at about 5.7 percent of after-tax income, according to Standard & Poor’s, well below the all-time high of 7.9 percent, set in 1981.