Oil prices have steadily rose over the last year, and experts are worrying further increases could snuff out an already-fragile global economic recovery.
President Barack Obama is expected to announce Wednesday his plan to open oil and natural gas drilling off the Atlantic Coast and Gulf of Mexico. The proposal aims to reduce the nation’s reliance on foreign oil, which theoretically could hold down prices for U.S. consumers.
OPEC countries also are convening in Mexico this week to map out a strategy for keeping prices from rising higher.
But officials may face an even bigger problem: The recent rise in prices seems to be driven by Wall Street investors — not market supply and demand.
Though prices crashed from their peak of $140 a barrel before the recession began in December 2007, they have since recovered substantially. Last year, the price of crude fell to $33 a barrel before a relentless recovery to about $80 by year-end.
Prices at the pump have been following the same upward path — from $1.84 in January 2009 to $2.67 by year end.
The upward trend has continued, and oil watchers at Wall Street banks are betting crude will eventually trade above $90 a barrel this year. Part of the reason, the thinking goes, is that as the global economy recovers so will demand for oil and gasoline.
“Overall, U.S. oil demand is definitely improving, laying the foundations for a broad-based recovery … notwithstanding the weakness in Europe,” Barclays Capital said in a recent report. “We continue to see oil prices consolidating in its current $75 to $85 range and on course to gradually move higher to $80 to $90.”
But wait a minute. If the global economy is using less oil, and supplies are more than adequate, why are oil prices at $80 a barrel in the first place?
The answer, according to oil analyst Peter Beutel at Cameron Hanover, is that investors are driving the price of oil — not the people who use it.
“The sovereign wealth funds, college foundations, union pension plans — all this big vested money has been sold on the idea that your investment portfolio is not complete without 10 percent in commodities,” Beutel said. Commercial Loan Workout.
Tags: economic recovery, investors, oil prices, us consumers, wall street
