Many economists and energy forecast firms argue that oil supply will be abundant in 2010 and demand will be modest. That does not seem to matter to oil traders. The falling value of the US dollar and an American Petroleum Institute report about American supplies seems to be enough to hold crude prices high and increase the promise the oil could move back above $75.
Economists continue to hunt for reasons that the recovery in the American economy could be derailed. At the top of that list is usually unemployment followed by weak consumer demand. The crude price spike of the summer of 2008 is almost forgotten as is it contribution to the recession.
Most analysis of the sharp downturn in the American economy late last year points to the credit crisis and drop in real estate values as the primary causes. Oil prices above $140 are a footnote. That assessment is probably a mistake. High oil prices nearly wrecked that airline industry, undermined auto sales, and put a massive burden on household budgets, especially those where long commutes and other travel caused regular use of large amounts of gas each month.
Oil prices could still contribute to holding back the economic recovery. China’s economy, once again red hot, will certainly need to be fueled by more crude. Some large oil producing nation ssuch as Nigeria and Iran are still politically unstable. An interruption in supply is just one rebel attack away.
The winter in the Northern Hemisphere could be cold this year. That would increase demand for fuel oil more than expected. Oil is inching toward $75 and it could stay there for the rest of the year.
Douglas A. McIntyre
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