Quick Stats

Quick Stats

    You are here

    $100 Oil: Will it Last?

    Analysts believe many factors play into the chances of triple digit prices for crude oil.

    NEW YORK -- In late 2007, crude oil prices approached the $100 per barrel mark, but it wasn't until the New Year that it decided to reach that lofty price.

    Light, sweet crude for February delivery achieved a historic milestone of $100 a barrel on the New York Mercantile Exchange on Wednesday, eventually settling at $99.62, then brushing the $100 mark again yesterday after the government reported a steeper-than-expected drop in crude oil inventories, BusinessWeek reported.

    The record was impacted by a variety of factors -- the government's report, geopolitical tensions, a weak dollar and weak U.S. manufacturing data, according to the report. In addition, there are thoughts that the Federal Reserve may cut interest rates, which would cause investors to move into commodities from stocks and bonds, increasing oil prices as a result.

    "Add it up and you have a wildly bullish day," Stephen Schork, an energy consultant in Villanova, Pa., and editor of The Schork Report, a daily energy newsletter, told BusinessWeek. "Fresh capital is charging back into the market and looking to buy."

    The affect $100 oil will have on U.S. consumers and the economy may vary. Consumer spending, which accounts for two-thirds of the U.S. economy, could suffer as prices rise, and as a result, may tip the economy into a further slowdown or recession, the report stated.

    "Staying at [the $100] level will mean inflation and economic hardship," Fadel Gheit, senior energy analyst for Oppenheimer Holdings, told BusinessWeek. "The price has nothing to do with fundamentals, but it has a broad impact."

    The impact that higher oil prices will have on the economy will depend on a variety of issues -- the resilience of consumers with the subprime mortgage crisis and the effect of higher energy costs on spending, which if spending slows, the economy could tip into recession, sending oil prices back down as demand drops.

    "Trees can't grow to the sky," Oppenheimer's Gheit told BusinessWeek.

    Whether oil can stay at $100 a barrel also depends on the Federal Reserve, the report stated. If the agency cuts interest rates, which would accommodate high oil prices, inflation will ensue. Conversely, if the government tightens the money supply, the country could face a recession, according to the report.

    "If the U.S. enters into a recession, the whole world could see a slowdown in demand," Phil Flynn, an analyst and vice president at Chicago-based brokerage firm Alaron Futures & Options, told BusinessWeek.

    However, several analysts told BusinessWeek that $100 oil can't be sustained. Flynn and others argued that the price spike on Jan. 2 was a fluke, resulting from unusually light post-holiday trading, the report stated.

    "$100 oil is more of a trophy than a trend," Tom Kloza, chief analyst for the Oil Price Information Service, told BusinessWeek.

    • About

    Related Content

    Related Content