Hopes for an economic recovery, along with supply concerns, are pushing oil prices higher than they have been in nearly a year. However, the rising price will in turn hinder that recovery. This means U.S. consumers can expect higher gas prices this year, whether or not the economy actually improves enough to help consumers' wallets.
In New York, the price of crude oil jumped $1.14 to $102.01 a barrel -- the highest prices have been since last May and a huge increase over October's low of $76.29. Prices rose because of increased demand in China and optimism over the U.S. economy coupled with increasing tensions in the Mid-East and Africa.
The fear that the slowing Chinese economy would lessen oil demand vanished Thursday on reports December imports were up 6 percent from the previous year. Commodities markets were already going up because of what is likely an over-reaction to news of improvements in U.S. business conditions.
At the same time, Iran has threatened to block the Straits of Hormuz if it is hit with a new wave of sanctions aimed at curtailing its nuclear program. The waterway, between the Persian Gulf and Gulf of Oman, allows the passage of as many as 20 million barrels of crude oil a day on tankers. While Tehran talks a lot about closing the Straits, this would be hard to accomplish in light of the enormous international naval presence in the area. It would also instantly unite a large number of nations against Iran and all but force a military response.
The more likely threat to supplies comes from Nigeria, the top oil producer in Africa, where workers are threatening to shut down oil production because of skyrocketing fuel prices there. That increase is the result of the government eliminating a fuel subsidy and has caused nationwide strikes. Oil workers in Nigeria clearly hold a trump card, and nothing but government concessions or possibly the use of force could stop them from using it.
Despite all this, U.S. consumers may not see a dramatic rise in pump prices immediately. U.S. gas suppliers have been stocking up on oil lately, in anticipation of a large increase in demand as the economy recovers. Because that recovery has been so spasmodic, demand hasn't kept up with supply and prices. In the last month, the national average price of a gallon of unleaded has risen 12 cents to $3.382, according to AAA.
If the buildup in oil reserves can soften price increases in any way, this will give consumers more money to spend elsewhere and hopefully further stimulate the moribund economy.