Oil Continues to Rise, New Record Reached
On Friday, April 18, 2008, crude oil reached a new record. Each barrel now costs $117, which makes gasoline prices closer to $3.50-$4.00 per gallon. Oil prices have been rising for five consecutive days.
News reports are saying that a major pipeline in Nigeria was damaged. There is a militant group that is allegedly responsible for a local explosion that hindered about 20% of the daily output of oil from that location. There are threats of continued attacks on major oil supplies in that area. Nigeria is a major supplier of oil for the United States.
Gas supplies for the U.S. are weakening. The weakness of the dollar is making oil a more desirable purchase for other countries. Meanwhile, oil is more and more expensive to the U.S. Supply is barely meeting demand. Unfortunately, this is the time of year when people need to fill their tanks more often for trips in the warm weather. Travelers are going to have to set aside more money for fuel.
Don’t be surprised if some gas stations are short of fuel or even shutting down. Some local gasoline companies might not be able to afford higher prices per barrel, and there may be some delays in gaining access to oil supplies.
The dollar will most likely continue to trade weak against the euro and the British pound. Especially since the European Central Bank has not reduced interest rates and the Federal Reserve is expected to continue to cut rate throughout this year. The cuts in the interest rates make it difficult to curb inflation, raises the cost of imports, and is thus increasing the price of oil. Food costs are also geared for further increases in the coming months.
The major focus of the Federal Reserve at this time is somehow stimulating long-term economic growth and maintaining liquidity to avoid a major credit crunch. The Board has noted that they are aware of the inflation risks, and will keep an eye on the situation.
For now, the best idea is to keep travel to a minimum, carpool, and budget a few extra dollars for gasoline. The cost won’t be going down at least for a few months.
