The surging price of oil is translating into lower consumer spending on gaming, according to a Deutsche Bank report.

The price of crude oil has surged 88 percent since last May, going from about $66.8 a barrel in May 2007 to $125 a barrel in May 2008, according to Andrew Zarnett, Deutsche Bank’s gaming high-yield analyst, who wrote about the issue in a report to investors.

Crude oil represents a great majority of the liquid energy complex, which consumers use for transportation and heating, and airlines use to fuel aircraft, Zarnett noted. Experts, he said, have primarily attributed this dramatic increase to higher demand in emerging markets, decrease in U.S. oil inventories, weaker U.S. dollar and geopolitical concerns Zarnett noted that the higher-energy costs are affecting the industry because they displace consumer disposable income from leisure activities as consumer choose necessity purchases over discretionary purchases; they negatively impact the price of air transportation to destination markets also forcing airlines to reduce capacity; and  they push costs of operating big box casinos upward. “Lastly, as energy is a large cost in most services and products, inflation continues on an upward trend, again forcing the displacement of consumer disposable dollars from discretionary activities.”

The report notes that lower discretionary dollars are apparently hurting regional gaming markets.

“Higher oil prices are changing the way consumers spend as costs of basics such as heating oil, gasoline and food surge to new highs,” the report states.

As gas prices hit $4 compared to $3 a year ago, Deutsche Bank expects visitations to regional markets to soften.

Recent data released by the South Jersey Transportation Authority suggests that visitations by autos and buses to Atlantic City have declined more than 5 percent from April 2007 to April 2008. “We believe this trend is likely to continue through 2008 as consumers will choose the convenience of Pennsylvania casinos over Atlantic City amenities, driven in large part by higher fuel and overall price inflation,” according to the report. “Furthermore, those who will make the trip will most likely reduce their gaming spend as higher energy costs displace a larger part of their discretionary incomes. In addition to Atlantic City, the decline in visitations across other regional markets, namely Indiana, Iowa, Louisiana and Missouri further substantiate the fact that higher gas and other goods may have substantially weakened visitations.”

Zarnett did note, however, the possibility that some customers may substitute a regional trip for a destination trip, which may end up being a relative positive for regional casinos, especially this summer.