Oil may have biggest monthly gain since 1999

Oil prices really moved up last year and at one point hit $147 a barrel. That has to be the fastest ascent in oil prices in history, right? Wrong -- at least not on a monthly basis. Oil's May increase will be the sharpest monthly increase since 1999.

Many analysts can't come up with a good set of reasons for crude prices to rise. The economy is still sluggish in most major world economies, excluding India and China. Production rates are steady and OPEC said it will not change output quotas. There may even be an oil surplus in the U.S.

According to Bloomberg, "Oil has followed equities primarily because investors have cash on hand on the sidelines," says Victor Shum, a senior principal at Purvin & Gertz Inc. Put another way, speculation is a big part of the spike up in crude prices. That sounds a lot like what happened last year.

Unless consumption in China and India is extraordinary, and it may be, oil prices could rise enough to undermine the recovery based on capital needing somewhere to invest. That would be a real tragedy.

The recovery in the world economy is by no means assured. It is in it early stages and fragile at best. A sharp rise in oil and gas prices could set it back to where it was early in the year.

Douglas A. McIntyre is an editor at 24/7 Wall St.


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