The “two year high” referred to? That was when oil was on it’s way down during the crash. This time, it’s on it’s way up…..an ominous sign.
Where’s peak oil in all of this? Remember it was the peak oil shock from 05-08 that caused the crash. And we’re heading for another oil shock soon enough.
Oil near $87 after hitting two-year high
Oil remained near $87 a barrel Friday after reaching a two-year high as the Federal Reserve’s plan to buy $600 billion of Treasury bonds to stimulate the U.S. economy drove a tide of cash into stocks and commodities.
By early afternoon in Europe, benchmark crude for December delivery was up 35 cents at $86.84 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, it reached $87.22 — its highest point since Oct. 2008. On Thursday, the contract climbed $1.80 to settle at $86.49.
The Fed’s announcement Wednesday underlined expectations that the dollar would weaken further and push up prices for commodities including oil.
The strength of the dollar and the price of oil are closely linked. The dollar has been getting weaker against other currencies for weeks, ahead of the Fed decision and some expect it to remain weak as more dollars pour into the economy.
Oil is priced in dollars and becomes cheaper for holders of foreign currency when the dollar falls. That interest then boosts the price.
When the dollar weakens, investors would rather hold hard assets like oil and other commodities because hard assets protect them against more weakening and inflation.
Despite the price jump, analysts pointed to continued weak demand as a factor which could make current levels difficult to sustain.
“Oil prices are already back to the end-2007 levels but the oil fundamentals are nowhere near those of 2007,” said Olivier Jakob of Petromatrix in Switzerland.
Sustained higher oil prices would make themselves felt across the economy, hampering growth.
“Commodity-induced inflation in emerging countries will pose a growing threat, and will eventually prompt more forceful rate hikes,” said a report from MF Global in New York. “These, in turn, will ultimately slow economies down, and deflate the commodity bubble from the demand side.”
Oil prices hit a high for the year of $87.15 a barrel in early May, when U.S. gas prices were around $2.90 a gallon. They’re heading back there again.
In other Nymex trading in December contracts, heating oil rose 0.85 cent to $2.3816 a gallon, gasoline gained 0.87 cent to $2.1858 a gallon and natural gas advanced 1.7 cents to $3.873 per 1,000 cubic feet.