Welcome to the most expensive year ever for energy – with $100 a barrel crude expected for a long visit, eating up an added $500 billion of scarce consumer cash in 2008.
Traders pushed oil futures to the dreaded $100 mark here for just a few seconds yesterday, ushering in a new era of bold energy prices that economists have been predicting for months.
“The $100 a barrel crude is acting like a magnet, pulling prices higher,” said energy analyst Peter Beutel of Cameron Hanover.
Crude slipped just under its $100 high to set a new record close of $99.62, up $3.64 a barrel.
Gasoline and heating oil both set record high closes, with wholesale gasoline at $2.5689, up 7.81 cents a gallon, and heating oil at $2.7404 a gallon, up 9.1 cents.
Oil speculators expect another run-up today when a new government report is expected to show Americans are continuing to use more crude oil than is stored back into reserves.
Geopolitical unrest on nearly every continent – such as this week’s rioting in Nigeria, Africa’s biggest oil producer – has helped oil get on track to pass the $100 mark to linger at $125 a barrel by summer, some analysts say.
“These prices are here to stay,” said Emil Pena, executive director of Energy and Environmental Sys- tems Institute at Rice University in Houston.
Although crude hov ered below its inflation- adjusted high of $101.70 hit in April 1980, follow ing Iran’s revolution, it was expected to crack that level this week.
The White House said it would not open up the nation’s emergency crude oil reserve to push down market prices. The world’s oil producing cartel OPEC said it has no plans to boost its production.
Some analysts blamed runway prices on OPEC’s “sitting on its hands.”
“OPEC isn’t eager to add extra production as a respite for these high prices,” said Beutel. He said even a token 500,000 barrels a day “could change the psychology and slow down prices, but they’re doing nothing.”
Prices are expected to surpass 2007 levels – the strongest year in energy history, said a report from Cameron Hanover. In 2007, crude was up 57.2 percent, gasoline jumped 60 percent, heating oil rose 69.4 percent and natural gas rose 21.4 percent.
“The only realistic option left to lower demand is to have a recession,” said Beutel. “But the (Federal Reserve) doesn’t want that to happen and is going to lower interest rates again and keep demand from falling.”
Fed rate cuts tend to weaken the dollar, which in turn causes oil-producing nations to charge more dollars for a barrel of their oil.