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Oil hits $100 as US economy slowly improves

Six-week spike pushes oil above $100 for the first time since July, as US economy improves By The Associated Press

NEW YORK (AP) ' Oil prices hit $100 a barrel on Wednesday after a six-week surge that may drive gasoline prices higher in coming months and slow the fragile economic recovery. For now, there a few reasons to explain why oil jumped 30 percent higher since early October.

One is promising. The U.S. economy continued to show signs of strength, meaning that the thirst for fuel may grow.

The other factor is troublesome, as concerns rise about potential disruptions to critical ' and tightening ' world oil supplies, including unrest in the key oil-producing areas of the Middle East and Africa.

The price run-up has led to increasing numbers of investors, such as major investment funds, pension funds, money managers and other speculators, to flood back into commodities markets.

"This thing is on fire," independent oil trader Stephen Schork said. "Everyone's gobbling oil up."

The benchmark oil price rose by 3.2 percent Wednesday alone, ending the day at $102.59 per barrel, after a Canadian pipeline company announced it would ship crude away from a key Midwest delivery point.

So far, the jump in prices hasn't pushed gasoline prices higher. Gasoline prices are being held in check because motorists are driving less than they did during the summer vacation season. Refineries also are allowed to make cheaper winter fuel blends this time of year.

Still, if oil holds above $100 per barrel for long, gasoline will inevitably rise from a national average of $3.402 on Wednesday. Analysts are already predicting pump prices above $4 per gallon in the spring.

It's tough to say how high oil will go.

After a similar surge in the spring, prices fell in April from this year's peak near $114 per barrel on fears of another U.S. recession and as industrialized nations planned and later released emergency supplies.

The springtime rise sharply curtailed economic growth. Consumers had fewer dollars to spend on other goods because gas cost so much more. There was even talk of $5 a gallon. The national average hit $3.9845 per gallon on May 5.

Consumer spending, which drives the U.S. economy, nearly came to a halt. The 0.7 percent growth in the spring quarter was the slowest since the recession ended in June 2009.

"Consumers had to pull back on other spending to fill up their gas tanks," said Ryan Sweet, an economist at Moody's Analytics.

A variety of factors since have pushed oil prices above $100 again.

'The U.S. bounced back from the spring and appears to have avoided a recession: Over the past several weeks, economic reports have shown that consumers are spending more, and manufacturing activity continues to grow.

'Supplies are tightening: Crude stockpiles have been falling this year in the U.S. The government said Wednesday that storage levels are 6 percent lower than their 5-year average. They could fall further, given that a Canadian company inked a deal to send oil from a key Midwest delivery point to the Gulf of Mexico, where much of it is expected to be refined and potentially exported to other countries.

'Growing concerns about some of the world's richest oil producers: Iran, the world's fourth-largest oil exporter, is suspected of developing nuclear weapons, according to a United Nations report earlier this month. Its nuclear program could lead to international trade sanctions, and Israel has threatened military action. Companies operating in Nigeria also say that oil production has been hurt by spills, sabotage and outright thefts. Nigeria is one of the top five oil exporters to the U.S.

'Developing nations continue to demand more oil: China, India, Latin America and other developing regions of the world are burning more fuel as they build factories and their people buy more cars. The Organization of Petroleum Exporting Countries expects world demand to increase from about 88 million barrels per day in 2011 to a record 92.9 million by 2015.

'Investors are increasingly confident that oil will go higher: Government data shows that speculators are mostly betting that prices will go up, not down. Intense interest from speculators tends to push oil prices higher, Schork said.

"They're just pouring money into this thing," he said. Because of the interest from speculators, it's hard to say exactly when prices would fall. "You just have to wait for buying interest to dry up."


AP Economics writer Christopher S. Rugaber contributed to this story from Washington, D.C.


Chris Kahn can be reached at

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