August oil futures quoted on NYMEX moved just shy of $100 this week. That number was $90 in late June. No amount of crude released from strategic oil reserves or a belief that demand in China will slacken with its economy slowing has kept prices low.
OPEC did not raise production targets when its members met last month. This, among other things, encouraged Goldman Sachs to raise its price targets as high as $130 for late next year. That call seems aggressive, but crude did rise from $90 in February to $115 in May, an increase of 27%.
There has been a great deal of optimism about oil price decreases among economists who search for reasons to support their forecasts of a GDP recovery this year. Just two months ago, many feared that high costs of gasoline would cripple consumer spending. Businesses that rely on oil had already been hurt. Airline profits fell. Even McDonald’s (NYSE: MCD) was concerned that the price to ship food to its stores had risen quickly.
The financial headlines this week have been dominated by signs that the job market has begun to improve and that many retailers had good June results. Oil prices have received much less attention. That is a mistake. Gasoline prices are bound to move back up in close concert with crude. Americans, particularly those who have little spare money and need to drive, will be pressured to cover monthly household expenses. Malls and stores will get less traffic from frugal drivers. July may look a great deal like April did, economically. Oil is back up. The number of theories as to why is almost limitless, but which is right does not matter to consumers.
Douglas A. McIntyre
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