Forget July 4, one more day like Friday and Americans could be staring at $150 per barrel oil by Fathers’ Day.
Investors are spending a nervous weekend worrying if oil – up 44 percent already in 2008 – will continue its sprint upward tomorrow, increasing the likelihood of $5 a gallon gas this summer.
“It’s eye-popping. It’s absolutely stunning,” Chris Feltin, an analyst at Tristone Capital, in Calgary, said late Friday after the price of oil surged more than $11 intraday on news of increased tensions between Israel and Iran and on a weaker US dollar.
One report early last week, from Morgan Stanley predicted oil would spike to $150 a barrel by the traffic-heavy Fourth of July weekend. While some scoffed at the aggressive report, it now seems well within reach.
It would certainly send pump prices in New York toward $5 a gallon and put a further strain on the already dragging US economy.
Friday’s historic jump in oil prices compounded an increase of almost $5.50 from the day before and rattled investors’ confidence and sent stock markets plummeting to their one of its lowest point for the year.
So while many economists and market strategists are still betting on a lull on Monday, no one’s really sure of what to expect.
“Given the rapidity in how fast oil rose, I would say the likelihood is for it to fall,” said Joe Davis, the chief economist at Vanguard Group. “But it’s impossible to tell,” he added.
Oil on Friday settled at See OIL Page 38
OIL from Page 37
$138.54 a barrel, far higher than where many market observers think it should be. Davis, for example, thinks oil should be at between $100 and $110 a barrel.
The reason for the discrepancy is that the price of oil is increasingly being driven by factors other than the fundamentals of supply and demand, including the unpredictable moves of speculative investors such as hedge funds.
These investors may bet on prices going up or down based on factors as ethereal as momentum, or the idea that when prices rise they will continue to rise and vice versa.
The latest increase, for example, has been attributed in part to speculative investors buying to cover so-called short positions, or bets that prices would fall.
“I would argue that a lot of what was conducted (Friday), a lot of that was speculation and that may or may not unwind,” said Davis.
The analyst was alluding to a report in the Israeli media in which an Israeli Cabinet minister said his country will attack Iran if it doesn’t abandon its nuclear program.
“I think we’re in a bubble,” said Liz Ann Sonders, chief investment officer with Charles Schwab, in an effort to explain the wild swings in commodity prices.
And bubbles, even once identified, can take years to pop, said Sonders, recalling the years between former Fed Chairman Alan Greenspan’s mention of “irrational exuberance” in 1996 and the dot-com bust in 2000.