Rising Cost of Oil

Rising Cost of Oil

  • Submitted By: simonclaude
  • Date Submitted: 02/05/2009 9:36 AM
  • Category: English
  • Words: 1351
  • Page: 6
  • Views: 2

Rising cost of oil threatens vulnerable economy

Experts uncertain if $100 crude — and possibly higher — will hurt growth

Fueled by strong demand, worries about supplies and the eroding purchasing power of the dollar, crude oil prices continued to close in on the $100 a barrel mark Wednesday — up $35 in just the past six months.
With oil prices’ advancing so rapidly, the immediate unknown is where they will stop before taking a breather. But the longer-term question may be even tougher to answer: How high can oil prices go before the higher cost of energy tips the U.S. economy into recession?
The rising cost of energy was one of several factors that send stock prices tumbling Wednesday, with the Dow Jones industrial average losing 360 points, or nearly 3 percent. The Dow and other major indices have lost about 6 percent in the past month, largely because of problems at big banking and brokerage firms related to bad mortgage loans.
Despite brief pauses, crude oil prices have risen relentlessly since May, as a strong global economy continues to burn through supplies as quickly as producers can replace them. A falling U.S. currency, meanwhile, has increased the price in dollar terms and stoked buying by investors looking for a place to hedge the dollar’s decline.
As a result, the short-term peak price is anybody’s — and everybody’s — bet.
“I think that $100 a barrel for oil is going to be near the peak for oil in the near term,” said Sam Stovall, chief investment strategist at Standard & Poor’s. With prices heading nearly “straight up, our feeling is that's not sustainable. We could see oil come down to $75 or $70 per barrel level.”
But so far, oil contracts on the futures markets have taken on the momentum of a runaway tanker car. On Wednesday, trading was brisk in contracts for delivery in coming months at prices well above the $100 mark. The benchmark near-month contract topped $98 a barrel before settling at $96.37 on the New York Mercantile Exchange....

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