Crude oil reached a new high price point for 2009 after clearing $65 per barrel. A combination of news that OPEC was maintaining production levels and data suggesting more hope for the US economy helped spark a $1.63 gain as trade on the New York Mercantile settled at $65.08.

The thinking around the oil market has definitely changed a lot in recent weeks. As 2009 started, oil was hovering in the range of $30-40, with some analysts calling for a bottom of $25 before conditions improved. The bottom actually never dipped below $30 per barrel.

As oil started to rise when the stock market began to rally a couple months ago, analysts began projecting a high of $75 per barrel for 2009. However, with prices already touching $65 per barrel, it is certainly possible that prices could extend well beyond that mark if the economy begins to recover before year’s end, as many top economists have projected.

The upward progression of oil to this point has been largely correlated with renewed hope about the economy and enthusiasm in the stock market. Consumer confidence is higher than at any point since September. Speculators are betting on confidence in the economy producing less restricted driving habits for both consumers and businesses.

Unemployment has started to become more of a sticking point for the devil’s advocate view about economic recovery. Housing data has somewhat stabilized, with debate ongoing about whether real estate has bottomed. Credit markets are still sour but conditions aren’t quite as dire to some as they were a few weeks ago. Unemployment is still expected to climb to near 10 per cent before peaking early next year.

What is the point? If people don’t have jobs, we’ll transportation and fuel consumption really pick up? If businesses aren’t growing, how can business consumption of natural gas increase?

Even if oil and fuel consumption stay flat at current levels, as has been suggested but recent data, it is the supply side of the equation that could help keep prices climbing. The OPEC decision to maintain current output levels combined with dropping inventories of oil in the US have contributed to speculative interest in oil. Even though US crude reserves remain near 19 year highs, inventory levels dropped by 5.4 million barrels last week. This was the third consecutive week of inventory declines.

Rising oil seem to be creating different feelings that it did last year when prices peaked at $147.25 in July, pulling gasoline above $4 per gallon. Even though consumers and businesses are paying $2.44 on average for gas, according to the Energy Information Administration, the fact that rising oil is symbolic of an improving economy, has lessened the concern over the cost of a few extra dollars at the pump.

Neil Kokemuller
10:50 PM EST
Thursday, May 28, 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. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices.

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.