Higher oil raises fuel prices

By Pete Southern in LiveWire Economics Blog | February 27, 2009 9:37 |

Oil spiked Thursday (February 26) for the second day in a row. After reaching a near-term low in the low $30 range last week, oil has climbed to $45.22 per barrel as of the close of New York trade. This was the second consecutive day of strong gains for crude after reports showed demand for petroleum and gasoline may finally have reached bottom. Reduced imports and recent OPEC production cuts may also be having an effect on the price.

Light sweet crude for April delivery was up $2.72 Thursday. The spike in crude in the last few days has been the most compelling upward surge for the commodity in some time. Oil fell from $147.25 to its low point in just a matter of months, since last July. Some analysts are quick to suggest that the ultimate low point may still be yet to come. With inventory levels still near record lows and the economy still slumping, some economists anticipate further price drops.

Gasoline demand was reported Wednesday to be up 1.7 per cent over the same point last year. This was the first increase in demand reported in some time as Americans spent much of late 2008 restricting travel and cutting mileage.

National average gas prices dropped by one cent overnight Thursday to a national average of $1.882, according to AAA and the Oil Information Service. Some pumps saw significant increases during the day, Thursday, though. Fueling stations in Des Moines, for instance, went from Wednesday night prices around $1.47 to Thursday night prices of $1.79 at most stations. The $2.00 price point is very close as was predicted a few weeks ago. The drive toward sub-$1.00 that some called for late last year seems a stretch at this point, though another nosedive by oil could shake things up.

Although some motorists were disappointed they missed out on lower prices Wednesday night, the price of fuel one year ago was $1.27 higher than it is right now. Put in perspective, traveling is certainly much more affordable. One month ago, prices were five cents lower than they are now.

Jobless claims were up to 667,000 in the latest Labor Department report, compared to 631,000 the week before. With unemployment currently hovering around 7.5 per cent, some economists have called for a rise to 10 per cent by the end of the recession. Growing unemployment is a good indication that the economy is still in deep turmoil. This is likely to help keep downward pressure on oil prices. Many Americans are still unsure what to make of Fed Chief Ben Bernanke’s comments earlier this week. Bernanke said it’s possible the recession could end in 2009, but he stopped short of offering any strong certainty.

Housing suffered another negative data report as existing home sales fell sharply, showing that recently low mortgage rates and steep home price discounts has not helped drive sales in the real estate sector. Mortgage rates are on the rise the last couple days after falling below 5 per cent in some markets during January. Some credit card companies are increasing rates in response to bad earnings reports. Housing and credit still carry much of the burden of jump starting the economy and consumer confidence.

Market Recap

Stocks gave up some ground Wednesday as more concern over the economic stimulus took hold. The Dow dropped 80 points. The dollar gained against the yen. Oil cleared $40. Home sales dropped again. The Dow fell by 88 points Thursday. Fannie Mae posted a bad fourth quarter and asked for $15.2 billion in bailout funds. Gas prices spiked as oil moved higher again and now sit above $45 per barrel.

Neil Kokemuller
10:27 PM EST
Thursday, February 26, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.



Most Popular Content

Currency Articles - May 22, 2019 15:21 - 0 Comments

The Pound is in Freefall – When Will It Stop?

More In Currency Articles


Gold and Oil News - Feb 13, 2024 2:04 - 0 Comments

Gold Prices Slip Ahead of Anticipated Economic Data

More In Gold and Oil News


Shares and Markets - Oct 14, 2023 19:01 - 0 Comments

U.S. Stock Indices: A Dance Between Optimism and Fear

More In Shares and Markets