Oil prices continue their journey into new territory and people everywhere are feeling the pinch in their pockets. Soaring fuel costs are taking some of the celebration out of this holiday weekend in the United States and also in Panama.
Oil prices headed into the busy Fourth of July break by racing past $145 a barrel for the first time Thursday. The story was no different at the gas pump, where the U.S. national average soared to within a whisker of $4.10 a gallon.
For a nation in love with their cars and traveling freely all over the country, the statistics are frightening:
- Last Independence Day weekend, drivers were paying just $2.95 a gallon for gas, about $1.15 less than today.
- Oil prices are up more than 50 percent since the start of the year. Prices rose by a similar amount in 2007—but it took almost the entire year for them to make that trip.
- Just this week alone, the price on a barrel of oil jumped 3.6 percent. And that was a shortened week.
Light, sweet crude for August delivery settled at a record $145.29 Thursday on the New York Mercantile Exchange, up $1.72 from the previous day. Earlier in the session, the contract rose to $145.85 a barrel, also a new high.
The latest surge in oil prices was boosted by a midweek report of lower crude stockpiles in the United States, growing concerns about Israel conflict with Iran and comments by Saudi Arabia’s oil minister suggesting his country would not increase production.
A slumping dollar has been a key driver pushing oil prices up by half this year. Many investors buy commodities such as oil as a hedge against inflation when the greenback weakens, and a falling dollar makes oil less expensive to investors overseas. When the dollar strengthens, traders typically have less incentive to buy commodities.
Oil prices are also rising because investors have been pumping more money into the commodity to compensate for what are perceived to be anemic returns elsewhere, analysts say. The major stock market indexes are all down by double digits since the start of the year.
Recent saber-rattling in the Middle East is another reason for this week’s increase. Traders are concerned that a conflict with Iran could disrupt what are already seen as uncomfortably tight global supplies.
Amidst this Twilight Zone scenario, the good news is that prices receded somewhat on Friday. Oil prices fell more than $1 a barrel Friday from record levels set a day earlier on hopes that tensions surrounding Iran’s nuclear program could ease and cut the chances of American or Israeli military action against OPEC’s second-largest oil producer.
By late Friday afternoon in New York, light, sweet crude for August delivery fell $1.04 to $144.25 a barrel in electronic trading on the New York Mercantile Exchange. There was no floor trading Friday in New York because of the July Fourth holiday.
Oil prices cannot rise indefinitely without world economies suffering—and with them just about everyone using oil, gas or their derivatives, whether it is to light a simple cooking fire somewhere in Africa, fill up at the pump in the United States or heat a 20-room mansion in Europe.
Analyst John Hall of John Hall Associates in London commented, “I think the markets are out of control.” “We don’t understand why prices are where they are. “And I can’t see a solution until we can answer those questions.”
If this expert can’t see a short-term solution to this problem, that means that there will be an even greater pain in our pockets in the months to come. Ouch!