Wednesday, April 7, 2010

Oil Prices Creeping Up

Oil and gasoline prices have been creeping up, not as much as they do in the average year, but enough to have politicians and oil companies fretting about the evils of speculation. With much of the world economy showing signs of recovery, it’s hard for me to see what will keep world oil prices from edging up another 25 percent to peak between $105 and $115 a barrel, probably in July rather than June.

The biggest variable in world oil demand is U.S. employment, as people drive their cars to work, and as soon as there is convincing evidence that the job market in the United States is growing, I expect oil prices will go back above $90 and stay there.

No one could be shocked by U.S. gasoline prices between $3 and $4 a gallon this summer, but the higher prices will still be a deterrent to shopping and other economic activity, putting a damper on any hopes for a steady recovery in the U.S. economy. There is no simple solution to this. Some experts are now saying that world oil production peaked five years ago, and the fact that we are looking for oil in deep water offshore is a testament to this. With higher energy prices, the pieces of the U.S. economy no longer fit together the way they used to, and it will take some ingenuity to reshuffle the economy to get it moving forward again.