Crude oil prices are shooting further into record territory, breaking above $130 a barrel for the first time on persistent supply concerns and a weaker dollar and heading for $180 a barrel.
The July contract for light, sweet crude rose as high as $130.30 in electronic trade on the New York Mercantile Exchange late afternoon Wednesday in Singapore.
Concerns that OPEC won’t increase its crude production before September fed some of the buying. Also, the dollar has been weakening against the euro and yen the last two days after appearing to be on a recovery track.
Oil futures are now selling for about twice what they were just a year ago.
In the short term — say, the next two years or so — we’re looking at bad news about global oil supply that could take the price of a barrel of crude to $180.
Needless to say, today’s $3.50-a-gallon gasoline would look cheap if oil prices hit $180 a barrel. At that price for a barrel of oil, gasoline would cost somewhere north of $5.50 a gallon.
The good news is that’s about the price, experts now say, that would send global consumption tumbling and oil prices into retreat, as drivers scrambled to find ways to conserve.
So why do I think oil prices will keep climbing for two more years at least?
A terrible coincidence of geology and geopolitics. Just when oil is getting more expensive to produce, the oil industries in three key countries — Mexico, Russia and Nigeria — find themselves short of cash. And without that cash, oil production in these countries, and global oil production in general, is headed into a decline.