An Ominous Sign: Crude Oil Approaches $90 a Barrel

Despite crude oil approaching the $90 a barrel mark, motorists saw little change in gas prices this week. However, this is expected to change in the coming days, as a spike in crude oil typically sends gas prices on the rise shortly thereafter. It’s an ominous sign. Just four years ago, on October 25 2007, oil prices hit a then record-high of more than $90 a barrel, within two weeks consumers were spending in excess of $1.2 billion each day for gasoline. The surge in crude and pump prices triggered a protracted drop in vehicle miles of travel and pushed the nation into the recession. Will history repeat itself?
The national average price of regular grade gasoline was $2.82 Friday, up a penny from last week, yet still 17 cents above year-ago prices. Despite recent increases, gas prices have remained below $2.90 for 25 consecutive weeks and $1.29 below the record high set in July 2008.
Crude oil began the week just under $82 a barrel and never looked back, clawing its way up to $87.40 Friday. Early Friday morning crude touched $87.22, its highest intra-day price since October 9, 2008 and surpassing this year’s peak of $87.15 on May 3. The commodity’s upward movement has been dominated by mid-term election results, in which Republicans regained control of the U.S. House of Representatives and gained more seats in the Senate, the Federal Reserve’s announcement of a fresh monetary stimulus plan aimed at lowering interest rates and boosting the pace of economic recovery, higher than expected U.S. jobless claims and a continued weakened dollar, which analysts believe will remain the principal driving factor in the oil market. Crude oil posted a 7% gain on the week.
In its weekly report, the U.S. Energy Information Administration (EIA) announced crude oil stocks rose 2 million barrels to 368.2 million barrels, more than forecasted and the largest domestic storage figure since May 15, 2009. Gasoline stocks fell 2.7 million barrels to 212.2 million barrels, more than forecasted.
The Weekend
“One week into November, gas prices are holding steady, but its unknown how long pump price stability will last,” said Tracy Noble, spokesperson for AAA Mid-Atlantic. “Crude oil prices reached 2010 highs last week, which will likely translate to slightly higher gas prices in the week ahead, as gas prices typically follow crude oil trends.”
The Week Ahead
Some analysts are saying crude oil could quite possibly be headed into a new range of $70 to $90 a barrel. The Organization of the Petroleum Exporting Countries (OPEC) says an oil price of $90 a barrel would not hold back world economic growth, which is a higher level than previously identified as posing no risk to growth. OPEC stated last month that it has no plans to add extra capacity. On the other side, other analysts say they aren’t sure how much longer the current run crude oil gains can last, given that at some point higher commodity prices will lead to higher inflation and interest rates.

CURRENT AND PAST GAS PRICE AVERAGES

Regular Unleaded Gasoline (*indicates record high)