Oil prices continue the surge today as light sweet crude came within 10 cents of $57 a barrel. The prices continue to edge toward the all time high set back in early April clearing the $58 mark and most watchers say cracking $60 is only a matter of time.
The light crude climbed over a dollar a barrel and the Brent crude in London was up 98 cents to $56.22. Gas is starting the climb in trades too, up 3 cents to $1.60 a gallon. The price at the pumps will certainly follow.
The EIA reported drops in both oil inventories and gasoline this week although the distillate reports continue to strengthen with robust growth in those inventories. Distillate grew 2.5 million barrels, up 400,000 barrels from a year ago. This is a good sign considering one of the major thrusts of the current prices spikes on oil was speculation of shortages on distillates in the winter months when the demand for heating oil goes way up.
The traders blew off OPEC after OPEC announce the official ceiling of oil production would be raised half a million barrels to 28 million. This was just OPEC lip service however because OPEC had already been pumping above official production ceilings for several weeks now in an effort to curb the price of oil. With no real production capacity left, OPEC’s hands are tied on the matter.
Two schools of thought proliferate. One is that oil is bottlenecked at refineries and that eventually, the sustained high levels of production will eventually win out. As inventories climb and refineries continue to run at peak levels, then the petroleum ship will right itself.
The other theory is that everyone is pumping as much as they can and it’s still not enough to sustain the consumption levels generated by the U.S. and China, India and everyone else. Morgan Stanley economist Andy Xie disagreed with this notion though pointing out China’s import levels have dropped slightly and will continue to do so, perhaps well into the next year. He predicted that if this were to happen, the oil price bubble would burst and traders would come crashing down.
The real question is this: How long can the U.S. economy hold up under the rising prices of fuel. The U.S. is certainly largest consumer of oil and gasoline but how long before it becomes a major problem? Eventually, the poorer countries are going to get priced out of the oil market and then much of the U.S. will too. Then the cheap oil scramble begins and the bubble will burst.
John Stith is a staff writer for Murdok covering technology and business.
