Worries About Oil Spill Push Oil Prices Higher

Oil Rig in Gulf

Crude oil futures ended flat after surging to a new 18-month high Monday. Signs of an economic recovery were the main catalyst, but traders were also keeping an eye on how the spill in the Gulf of Mexico will affect oil imports to the US.

Time Magazine said the environmental disaster off the Gulf Coast is not expected to have any serious price effect—but that the economic recovery, mostly in China and India, is pushing oil prices higher. Peter Tertzakian, an economist with ARC Financial Corporation, said, “The oil market is revving up again.”

At the same time, the gushing crude in the Gulf could undermine imports to key Louisiana terminals, helping to lower crude inventories and boost prices, according to AP. “The potential disruption of oil tanker traffic in the Gulf of Mexico is already having an impact on oil prices.” Goldman Sachs said in a report. “Traffic of oil service boats and oil tankers through the Gulf will likely be slowed.” Goldman said it expects prices to rise to $94.50 a barrel in three months.

In a report from the Desert Sun in Palm Springs, Calif., Esmael Adibi, chief economist at Chapman University, said, “When other companies start slowing down production or double-checking their operation—all that will impact the supply side.” Prior to the accident, Adibi expected Southern California’s average gas prices to stay between $2.75 and $3.25 per gallon on average this year. Now he says local gas prices could now reach an average of $3.50 per gallon by summer.

In 2008, when oil hit $147 a barrel and the price of gasoline exceeded $4 a gallon, US buyers made a massive shift away from large SUVs to small fuel-efficient cars and hybrids. But US consumers returned to larger vehicles, and driving more miles, when prices dropped. The return of triple-digit oil prices is expected to bring renewed interest in the most fuel-efficient vehicles on the market, such as hybrids and plug-in vehicles expected in late 2010.

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  • Anonymous

    the sad part is… people still don’t learn. I’m starting to see people going back to suv. some will find comfort in buying so call cuv which is really suv with a name change. the second oil shock will come, it’s now just matter of time.

  • Samie

    One interesting note, domestic oil from the Gulf that is produced and refined to use in the U.S does not make much difference in price because we are somewhere between 83-87% of our oil being imported from other countries. If refineries had to shutdown we would have a problem. Also industry lobbyist know most of the unexplored areas are off the coast of Florida but they have had a hard time getting their way becasue of retirees and the recreation industry in that state.

    There is another interesting point in all of this. If you believe in market based solutions, this oil spill is yet another reason why people lie to you about this concept and why there is fake political ideologies. Say if the Department of Interior only provided a backdrop of safety guidelines for the industry. The petroleum industry could self-regulate and come-up with environmental or safety standards to best fit their industry while reducing cost of government compliance. This sounds good until government distorts this concept by letting oil companies like BP cap liability, tax-payers subsidize their products, or lets them through state statues use waivers that may or may not be constitutionally acceptable (depending on pro-business or pro-consumer courts). So here is the point government does distort the price for the oil industry by limiting safety costs imposed on them and this allows for risky behavior because the cost is not built into the price of their product. If government didn’t shield their costs, we may see greater costs at the pump so BP can make up for lost profits. Also we would see better long-term standards within the industry. Government should play a role in developing alternative energy markets like electricity to help bring competition in the transportation energy market and to help reduce the in-elasticity of the petroleum market.

    People should not be mad when I say fake political ideologies because in the world of talking points, industries never pay the full price of their actions because government distorts these prices for them. This is known by political think tank groups but very rarely is ever discussed in the public or in the media. So be careful when you hear tough talk or shaming BP from Democrats or Republicans because they are lobbied by oil industries to help distort costs. Also don’t believe in the talk of big bad government because in private these industries need government to protect them against paying for prices that are external to what they value in their market price.

  • Dom

    “Worries About Oil Spill Push Oil Prices Higher” – well of course it does! Any excuse to jack up the price…

  • AP

    “Anonymous” is right in that most people’s memories vary from “short” to “none”, and return to buying gas guzzlers as soon as their pocketbook will allow.

    The result is that it creates an SUVmarket to fill, and whichever auto manufacturer doesn’t fill that niche loses potential profits to fund research, upgrade products, etc. This puts them behind their competitors.

    On the other hand, when they do supply the SUV market, they are roundly criticized. Government, by preaching efficiency but encouraging waste (through cheap gas) creates a built-in conflict between auto-makers, consumers, and environmentalists.

    Notice that the conflict doesn’t include the politicians who set the policy. They’d rather let the auto industry take the blame. No, they’re not hypocritics… much.