Posted on: Friday, June 24, 2005

Oil at $60 per barrel in trading

By Janes R. Healey
USA Today

Oil hit $60 a barrel in late-day trading yesterday, and closed at a record $59.42 — high enough to hurt stock prices of fuel-dependant industries and drag down the major market indexes.

"Formerly untouchable levels for most other (petroleum products) appear in sight," says Tom Kloza, senior analyst at the Oil Price Information Service.

Agbeli Ameko, managing partner at consultant First Enercast Financial, says "$60 is a very important milestone psychologically." Once it's passed, "the question then is where do we go from here? Our forecast is for prices to break $62" soon. That means a U.S. average "$2.50, $2.60 regular-gas prices at the pump is definitely what we'll be seeing in the next few weeks."

While the August contract closed lower than $60, futures contracts for purchases of light, sweet crude oil every month through next June closed higher than $60 yesterday, showing that traders see continued high prices.

Still, oil remains well below the inflation-adjusted record of $83.41 — $39 a barrel in early 1981.

Explaining and predicting oil prices is as slippery as the oil itself. Kloza cites "dueling analysts." One side notes that "fundamental data still show plenty of crude oil available worldwide" and argues that current prices are a bubble that will burst and leave speculators devastated.

The other side, he says, "points to fast-paced global growth, capacity constraints within OPEC and non-OPEC countries, and the ever-present dangers from unstable producers such as Nigeria and Venezuela." Those analysts see at least $50 a barrel for at least nine months.

In the U.S., where most oil products — gasoline, diesel and aviation fuel — are used for transportation, higher prices indicate a strong economy that can absorb the increases, but they also become a drag on that economy.

"Fifty-dollar oil hasn't had any effect on consumption, and $60 oil probably won't, either," says Mary Novak of Global Insight.

"The reason is there's no substitute. If you have a job, you're going to drive to work. If you're planning a summer vacation, OK, it might cost you $100 for gas, but does that mean you're not going?"

But, she notes, "When the cost of necessities goes up, you give up spending on other items; that $15 pizza every week."