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Oil Prices Hit Record High

February 27, 2008

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Oil prices set a new intraday trading high of over $102 a barrel Wednesday morning after the dollar sank to a record low against the euro.

On the New York market, light, sweet crude for April delivery briefly spiked above $102, but dropped back to close at $99.64 after the government said stockpiles of crude oil and gasoline rose far more than expected last week. That followed a record high close Tuesday of $100.88.
Analysts say the prices have little to do with oil market fundamentals or supply and demand. Rather, the weak U.S. dollar, combined with new economic data showing rising inflation, has pushed investors into the commodities market, which is generally considered a hedge against inflation.
Truckmiles.com showed average diesel fuel prices at $3.61 a gallon Wednesday, up nearly 2 cents from the day before. Some experts say gas prices could approach $4 a gallon by spring or summer - and since 2004, diesel prices have consistently been higher than gasoline prices.
This is not a good sign for the health of the economy. Fuel prices could be key to whether the U.S. economy falls into a recession.
Kenny Vieth, general manager and partner of A.C.T. Research, explains that every penny change in the price of a gallon of fuel is roughly equal to $2 billion being diverted from discretionary spending on goods to spending on energy. Because consumer spending makes up about 75 percent of the economy, that's a big hit. Last month, Vieth predicted that "if we see gasoline prices heading up to $4 a gallon, I think recession is almost pre-ordained."

Oil prices are not likely to drop anytime soon. Barclays Capital recently predicted that prices could reach $137 a barrel in 2015.

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