Monday, May 3, 2010

Worries About Oil Spill Push Oil Prices Higher

Oil Rig in Gulf

Crude oil futures ended flat after surging to a new 18-month high Monday. Signs of an economic recovery were the main catalyst, but traders were also keeping an eye on how the spill in the Gulf of Mexico will affect oil imports to the US.

Time Magazine said the environmental disaster off the Gulf Coast is not expected to have any serious price effect�but that the economic recovery, mostly in China and India, is pushing oil prices higher. Peter Tertzakian, an economist with ARC Financial Corporation, said, �SThe oil market is revving up again.⬝

At the same time, the gushing crude in the Gulf could undermine imports to key Louisiana terminals, helping to lower crude inventories and boost prices, according to AP. "The potential disruption of oil tanker traffic in the Gulf of Mexico is already having an impact on oil prices." Goldman Sachs said in a report. "Traffic of oil service boats and oil tankers through the Gulf will likely be slowed." Goldman said it expects prices to rise to $94.50 a barrel in three months.

In a report from the Desert Sun in Palm Springs, Calif., Esmael Adibi, chief economist at Chapman University, said, �SWhen other companies start slowing down production or double-checking their operation�all that will impact the supply side.⬝ Prior to the accident, Adibi expected Southern California's average gas prices to stay between $2.75 and $3.25 per gallon on average this year. Now he says local gas prices could now reach an average of $3.50 per gallon by summer.

In 2008, when oil hit $147 a barrel and the price of gasoline exceeded $4 a gallon, US buyers made a massive shift away from large SUVs to small fuel-efficient cars and hybrids. But US consumers returned to larger vehicles, and driving more miles, when prices dropped. The return of triple-digit oil prices is expected to bring renewed interest in the most fuel-efficient vehicles on the market, such as hybrids and plug-in vehicles expected in late 2010.

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