Oil prices surge past $86 per barrel. How high can the costs go?
On Monday, oil prices reached a new high for the year – a sign of growing confidence that economic activity is recovering. But high prices could put a squeeze on the economy.
Oil prices rose to new highs for the year on Monday – above $86 per barrel.
It's a sign of growing confidence that economic activity is recovering, and according to some energy analysts, fuel prices could keep heading upward just in time for the summer driving season.
But if oil prices keep rising, it could put a squeeze on that same economic activity.
A catalyst for Monday's 2 percent price rise was better job-market news. The US added 162,000 jobs in March, according to a Friday report from the Labor Department. Oil markets had been closed for Good Friday.
Also, the energy-intensive manufacturing sector has been reviving faster than many expected.
The big question is: How high will prices rise, and with what impact on the economy?
"Economic optimists have taken control of the market," Gene McGillian, an analyst at Tradition Energy in Stamford, Conn., told Reuters. "We can keep trending higher."
Forecasters are divided over how much momentum oil prices will have. The run-up could continue to $90 or $95 a barrel or higher, some say. Factors that could keep prices rising include more demand from China, possible escalation of Western-nation tension with Iran, and market speculation as investors look for hot trends to ride.
Other factors, though, could reduce the potential for a 2008-style spike in oil prices. Unemployment in the United States, a key energy-consuming nation, is still nearly 10 percent – and even many Americans with jobs are still feeling the financial effects of the recession (such as slow pay raises and shrunken home values).
In a March forecast, the US Energy Information Administration predicted that the price of West Texas Intermediate crude will stand at $82 per barrel at year-end and $85 per barrel by the end of 2011. The agency will release its latest forecast on Tuesday.
A key factor for oil prices will be how suppliers in the Organization of Petroleum Exporting Countries respond to reviving demand, said the International Monetary Fund in its annual economic outlook last fall. Non-OPEC nations aren't poised to boost supplies. According to the IMF report, recent experience suggests that "OPEC members will respond gradually and with some lag to increasing demand."