Posted By
KIM KORTH
on
2/11/2011 3:57 PM
Oil prices have been steadily rising over the last month. They have been bouncing around $70-80 per barrel which translates to $2.50-3.25 a gallon. What has added “fuel to the fire” (pun intended) is the breakout in unrest in the Middle East. So, is it time to start worrying about oil prices again?
Unfortunately, yes. Oil prices are already hovering between $95-100 and if the Suez Canal is shut down, or the unrest spreads to Saudi Arabia, all bets are off on oil prices in the short term. In 2007, the wild spike in oil prices was at least partially driven by speculation. Post mortem analysis of that period suggests that the top demand driven pricing was about $90 a barrel. The additional $45 per barrel at the peak was financial speculation. This time around, it will be fear more than greed driving prices (although greed is never far behind). So does this have the potential to change the product mix dynamic in North American vehicles again? We think no.
This rise in prices is unlikely to last indefinitely and American consumers have already mentally come to terms with $4 per gallon gas. If it pops up to say $5 per gallon, it will have an impact, but not a huge one if this spike is short lived.
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