Oil Prices, Nearly Doubled This Year, Make A Run At $100

Oil prices have moved between $73 and $60 since early June. Crude now trades at the high end of that range, defying occasional news of double-dip recessions and low demand in the US and Europe. Oil has moved above $74 in the last two days.

It may not take much to push oil prices much higher, even though the global economic recovery seems slow.

It is not clear whether the upcoming winter in the Northern Hemisphere will be cold or not. Unusually chilly weather could cause a significant demand for crude beginning in October. If that demand hits at the same time that China exports are moving up due to its resurgent economy, oil prices should rise quickly.

The German, French, and Japanese economies are moving out of recession much more quickly that expected. If this momentum increases in the current half of the year, consumer consumption and renewed business activity will increase crude demand in two of the world’s largest developed regions.

The most significant pressure on oil prices is still from China. Although its exports are at multi-year lows, the government shows very little concern about the effects of its $585 billion stimulus package which does appear to be propping up business activity and local consumer spending. Modest bubbles have formed in the stock markets and real estate sectors, but a 20% drop in the Shanghai Composite Index has helped calm any fears of unusual asset inflation.

The hurricane season often causes temporary increases in oil prices. Hurricane Bill came close to off-shore platforms off the Canadian coast. It would not be unusual for several storms to run through the Gulf of Mexico and temporarily interrupt deep water drilling there.

Unless the global economic recovery is a mirage, there are many more reasons for oil to rise than for it to fall.

Douglas A. McIntyre