The price of crude oil reached an all-time high of $147.30 in July 2008. Many analysts believe it will reach that level again this summer. If oil does hit $140 or better again, how long it stays there will be more important than whether it has set a new record.
The cause of a new high most likely would be a flare up in the standoff between Iran and European Union and United States. There remains a real chance that Iran closes the Strait of Hormuz, or tries to. Nearly 20% of the oil passes through there. Because an American aircraft carrier group lingers nearby in the event of an Iranian blockade, the standoff could become a shooting war.
Oil prices may reach a new peak for other reasons. They range from an increased demand because of an economic recovery in the U.S. to Nigeria becoming less stable internally. Venezuela, a large oil exporter, could lose its long-time leader, Hugo Chavez. There is always a chance of a catastrophe at some drilling site or on a tanker.
Oil prices fell rapidly in 2008. By November of that year, the price was back below $40. The global recession kept crude at relatively low levels for two more years, which prevented prices from inflicting more damage on an already troubled world economy.
This time the price for crude could remain high for much longer. It may remain elevated until well after it causes a new global economic slowdown, which would happen if gasoline and petrochemical prices soar — as they would. Rather than dropping because of the onset of a recession, crude oil would start another one if prices do not nose dive as they did in 2008.
The reasons for a sharp drop in crude are fewer now than in 2008. The causes for an increase are greater. Oil may rally well above $150. Such a rally this year would cause irreparable damage to the economy near term, if there are no forces to drive oil prices back down.
Douglas A. McIntyre