27 Dec 2010

$100 oil is coming – how high will it go?

Written by Jim Pierobon

As oil prices approached $92-a-barrel, several reports point to oil prices rising above $100 per barrel and $4-per-gallon gasoline in some parts of the country this winter.

The reasons include:

1. The Federal Reserve pumping money into the economy.

The New York Mercantile Exchange. Image courtesy of HeatingOil.com.

“There’s really not a whole lot keeping the price of crude oil from going above $100 a barrel right now,” Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University, told the Dallas Morning News.

2. The U.S. Treasury is increasing the supply of dollars driving down the value of the U.S. dollar. Most oil transactions are denominated in U.S. dollars thereby requiring a higher price even to meet level demand.

3. Speculation over demand for heating oil on the New York Mercantile Exchange (NYMEX) as the colder-than-normal December — especially in the Eastern U.S. — comes to a close and the season’s first blizzard blankets the Northeast.

“Crude oil’s become much more of a financial instrument than anything else. It’s much more similar to gold and things of that sort than it is driven by fundamentals,” Alon USA chief executive Jeff Morris told the Morning News.

4. Arab members of the Organization of Petroleum Exporting Countries (OPEC) said the full group would likely not even meet until June to discuss changing production quotas which could change the supply of crude come out of the Middle East, Bloomberg reported. OPEC, which accounts for about 40 percent of global crude output, left quotas unchanged at a meeting earlier this month.

Track oil prices via Bloomberg here.

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