The recovery in oil prices is an encouraging sign of world growth, but the spike in crude, if unchecked, also could pose problems for consumers whose incomes remain pinched, according to a report in the Wall Street Journal.
Crude oil closed above $90 on the New York Mercantile Exchange on Wednesday for the first time since October 2008, after prices fell in the [image-nocss] early months of the financial crisis and global recession. The price of crude had held above $80 for much of 2010, and crept up in recent weeks.
Crude's rise is hitting motorists in the wallet. The average price for a gallon of gasoline reached $3 for the first time in two years, after increasing 10.9% since this summer, according to the AAA Daily Fuel Gauge Report, as reported by the newspaper. U.S. drivers will likely see further inflation at the pump soon, in part because refineries have lowered their inventories to avoid an end-of-the-year tax hit. Leaner inventories cause higher crude prices to filter down to drivers more quickly than usual.
The market sentiment is being driven by the assumption that economic recovery will translate into a physically tighter oil market, Tim Evans, an analyst at Citi Futures Perspective, told the newspaper. The reality I see is that oil production is easily keeping pace with the recovery in demand.
Citi Futures expects crude-oil prices to rise to $93 a barrel in the next six to 12 months. Some analysts have projected that the price could pop above $100 a barrel again in 2011.
Oil prices are up 26.3% since late August, in part for the same reason stocks and other commodities have also risen: an expectation of improved global growth and investor willingness to take on more risk because of the U.S. Federal Reserve's steps to pump up the economy.
Recent conditions have bolstered oil companies' confidence. Globally, they are expected to spend $490 billion next year to find and produce oil and natural gas, breaking a record set in 2008.
Oil observers have been surprised by the strong demand for crude this year, even as large swathes of the global economy are still limping along.
The world gulped 2.5 million more barrels of oil per day than a year ago, for the second-highest growth in oil consumption since the 1970s, according to the International Energy Agency.
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