Oil likely to fuel high prices for goods in '08
Monday, 24 December 2007
NEW YORK, Dec 23 (AP): Oil's run to nearly $100 a barrel this year jacked up the cost of travel, clothing, beauty products and milk, and many analysts think fuel prices will remain at historically lofty levels throughout 2008.
But record energy prices could sow the seeds of their own destruction. Along with the housing crisis, they are contributing to an economic slowdown that is sapping the country's energy appetite just as oil producers ramp up production.
''The cure for high prices is more high prices,'' said Tim Evans, an analyst at Citigroup, in New York.
That doesn't mean oil will plummet - unless there's a severe recession, said Evans, who expects prices to hover near $70 a barrel. In the face of such forecasts, OPEC could decide to cut production, as it did last year, to keep prices from falling too low.
Other factors will also keep a relatively high floor underneath prices. Demand is expanding in China, India and the Middle East. And political upheaval in oil-producing countries such as Iran, Iraq and Nigeria have sparked wor ries about possible supply disruptions. These concerns have prompted banks and hedge funds to make big bets on oil - investments that put further upward pressure on prices.
Several analysts have boosted their average oil price forecasts for 2008 - $75 a barrel is a common prediction. And many expect tight domestic refining capacity to push gasoline prices higher in the spring, possibly threatening last May's record of $3.227 a gallon.
But record energy prices could sow the seeds of their own destruction. Along with the housing crisis, they are contributing to an economic slowdown that is sapping the country's energy appetite just as oil producers ramp up production.
''The cure for high prices is more high prices,'' said Tim Evans, an analyst at Citigroup, in New York.
That doesn't mean oil will plummet - unless there's a severe recession, said Evans, who expects prices to hover near $70 a barrel. In the face of such forecasts, OPEC could decide to cut production, as it did last year, to keep prices from falling too low.
Other factors will also keep a relatively high floor underneath prices. Demand is expanding in China, India and the Middle East. And political upheaval in oil-producing countries such as Iran, Iraq and Nigeria have sparked wor ries about possible supply disruptions. These concerns have prompted banks and hedge funds to make big bets on oil - investments that put further upward pressure on prices.
Several analysts have boosted their average oil price forecasts for 2008 - $75 a barrel is a common prediction. And many expect tight domestic refining capacity to push gasoline prices higher in the spring, possibly threatening last May's record of $3.227 a gallon.