How long will oil prices keep rising?
The Syrian crisis lifts New York crude to its highest level since summer 2008. Brent briefly pushes above $117.
Wednesday was the oil industry's day in the spotlight.
Because of the fears the United States is about to attack Syria over the alleged use of sarin gas, light sweet crude oil (-CL) briefly topped $112 a barrel and finished above $110 a gallon, its highest close since October 2008. Brent crude, the benchmark North Sea price, traded above $116 a barrel for the first time since February.
The oil surge set off rallies in energy stocks, the stock market's strongest sector. Gains for Chevron (CVX) and Exxon (XOM) generated 80.3% of the Dow Jones Industrial Average's ($INDU) 48-point gain on the day, its first since Friday.
The price run-up is starting to be felt at the gas pump, too. The national AAA average price for regular unleaded gas rose to $3.546 a gallon from $3.542 on Tuesday and $3.536 on Friday.
But no, we are not dealing with high levels for the year. Wednesday's price is down 12.6 cents from $3.672 on July 31, and it's down 24 cents from the year's peak price, $3.786 on Feb. 27.
The question is how long oil prices will remain high, and how will they affect pump prices. Many analysts believe high prices will be around some time.
Light sweet crude, the benchmark U.S. crude, settled Wednesday at $110.10 a barrel, up $1.09. That is crude's highest close since Aug. 29, 2008, when it settled at $115.59 a barrel. In electronic trading late Wednesday, crude had fallen back to $109.46.
Brent peaked at $117.34 a barrel on Wednesday, briefly fell below $116 and settled on the day at $116.61, up $2.25. It was the highest close for Brent since Feb. 19. It was trading under $116 in overnight trading.
Brent is often shipped to refineries along the East Coast of the United States and exercises a strong influence on retail fuel costs.
Brent could hit $125 in the coming days, according to Michael Wittner, an analyst with Societé Gènerale. It could jump to $150 if the Middle East falls into chaos. That is not a happy prospect for the economy in the next few weeks -- nor for the holiday shopping season if high oil prices stick around for long. Indeed, it would be lousy for just about any economy.
At the same time, time of year may push prices lower. Driving starts to fall off in the autumn after vacation season, and refiners produce a cheaper grade of fuel for the fall and winter.
History suggests, moreover, that crude oil is quite volatile, and a quick, sudden price break will come. Even Wittner concedes that point, according to Marketwatch.com. High oil prices will deter driving and affect utilities, slowing economies. Saudi Arabia could pump extra amount of crude. Countries, including the United States, could release strategic reserves.
But a more likely scenario comes from Stephen Schork, the editor of the Schork Report newsletter on energy.
"We will likely have to endure a short aerial campaign and the air pressure that will generate in spot crude oil prices, he wrote in late Tuesday. "Then, after prices are inflated high enough, this bubble will pop. . . . just like it did in 2012 in the waked of the Iran sanction hysteria and just like it did in 2011 in the wake of the Libya civil war hysteria."
The Dow's 48-point gain to 14,825 was modest, and it was just the second-largest point gain for the index in August.
Twenty of the 30 Dow stocks were higher, with Hewlett-Packard (HPQ) the percentage leader, up 62 cents to $22.61. Chevron was up $3 to $121.81. Exxon added $2.02 to $88.84.
The Standard & Poor's 500 Index ($INX) gained 4 points to 1,635. Nine of the20 top performers on Wednesday were energy companies, with Marathon Oil (MRO) and Pioneer Natural Resources (PXD) the second- and third-best performers, respectively.
The Nasdaq Composite Index ($COMPX) added 15 points to 3,593.
The Dow is down 4.4% for the month. The S&P 500 is off 3%, and the Nasdaq is down 0.9%. The indexes are still higher for the year, with the Dow up 13.1%. The S&P 500 is up 14.6% and the Nasdaq up 19%.
Gold (-GC), meanwhile, fell $1.40 to $1,418.80 an ounce. Silver (-SI) was off 26 cents to $24.391.
The 10-year Treasury yield rose slightly to 2.782% from Tuesday's 2.721%.
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How high will a barrel of oil reach?
Well, considering the US and Israel along with perhaps the UK will be practically disarming Iran's forward post of Syria prior to an assault upon Iran... and considering the US has two carrier battle groups in the Persian Gulf. All of this whilst knowing that Iran is still hell bent on its nuclear weapons programme and would probably make a fair play of shutting down the straight of Hormuz -- a fair estimate would be $180 - $200 per barrel. Does that make the average price of a gallon of gasoline in the US $6 or $7 ??? And if we factor in shortage of supply and potential price gouging, easily over $10 per gallon.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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