Crude oil costs soared on Tuesday to pass $90 a barrel, a 26-month high. Gas and oil prices have been increasing for a number of reasons. A money eroding in value and harsh winter weather are the primary drivers. A compromise with Republicans by the Obama administration that involved extending the Bush tax cuts, and traders hedging against the weaker dollar are also affecting oil costs.
Oil costs hit twenty six-month high
The West Texas Intermediate (WTI) crude oil price Tuesday climbed above $90 a barrel for the first time since Oct 2008. The WTI crude oil is also called Texas light sweet crude and is traded as a commodity as oil futures on the NY Mercantile Exchange (NYMEX) which determines oil pricing. Crude oil futures rose as U.S. inventories declined, based on the Energy Department. Oil inventories have decreased by 40 million barrels over six weeks, and supply is expected to tighten further. Demand for heating oil in the United States of America was forecast at 16.3 percent above normal for the week ending Dec. 11, based on the National Weather Service. In Europe, below normal temperatures are driving above normal energy demand.
Oil prices using the Bush tax cuts
Obama agreed to a two year extension of all of the Bush tax cuts in exchange for unemployment getting extended and the payroll tax getting cut in 2011 2 percent which made WTI crude oil prices go up. Investors anticipate extending the Bush tax slashes will strengthen economic recovery, a good thing for oil prices and oil companies. Stronger United States money had been keeping crude oil prices in check, however recent Federal Reserve monetary policy moves have eroded the dollar’s value. Prices are increasing due to traders trying to hedge against the declining currency. WTI crude oil futures are being bought by these people.
Next year, gas prices will go up
Speculators have pushed wholesale gas futures up by 55 cents a gallon over the last three months. There was more than a 10 percent increase in national gas prices. This was just in the last week too. The trend will likely continue in the U.S. Soon, the cost of oil might go over $100 a barrel. This is because the oil price rise hasn't compensated for the loss in the money, according to the Iranian OPEC's governor. Several of the energy analysts suggest that next year the gas costs will become high again. They might get near $4 a gallon.
Articles cited
International Business Times
ibtimes.com/articles/89539/20101207/crude-oil-breaks-above-90-as-obama-agrees-to-extend-tax-cuts-wti.htm
Bloomberg
bloomberg.com/news/2010-12-07/oil-trades-near-26-month-high-on-forecast-of-decline-in-u-s-crude-supply.html
Reuters
reuters.com/article/idUSN0732290620101207
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