The U.S. economy is gaining steam. But will high oil prices derail the recovery?The U.S. economy has just started to gain some steam, with manufacturers' humming, exports rising and companies finally adding jobs. But now high oil prices threaten to derail the fragile recovery.

The price of oil, which has stood above $80 per barrel for months, recently cleared the $90 mark. And the rise has not gone unnoticed in public-policy circles. The International Energy Agency, an energy-policy adviser to 28 countries and others, says the costly crude prices jeopardize not only the U.S. economy but also the global recovery.

"Oil prices are entering a dangerous zone for the global economy," IEA Chief Economist Fatih Birol said in a statement earlier this month. "The oil import bills are becoming a threat to the economic recovery. This is a wake-up call to the oil-consuming countries and to the oil producers."

Birol added that "it may not be a bad idea that the producers are ready to increase production and show their understanding that these high prices are not good for the global economy."

OPEC: Don't Blame Us

Although high oil prices increase the GDP in oil-producing economies, such as Saudi Arabia, Kuwait, Russia and Venezuela, they also increase costs for consumers and businesses. And that lowers GDP growth in oil-consuming nations, with the U.S. at the top of the list. And while the rise of emerging markets, such as China, India, Brazil, Mexico and Russia, means the global economy is less dependent on a growing U.S. economy, a domestic slowdown still would hurt global commerce.

Still, the desire to increase oil production -- and thereby lower prices -- is hardly unanimous. OPEC, which includes 12 countries that produce some 40% of the world's oil, says it's not to blame for the high oil prices.

Contradicting the IEA's position, OPEC's Secretary General Abdalla El-Badri on Jan. 17 rejected the notion that more production was needed. He said the talk of tightness in the oil market was "incorrect," FT.com reported. "At the moment, fundamentals show there is more than enough oil on the market," El-Badri said.

And a day later, OPEC released an official statement chastising the IEA and citing other -- nonproduction -- variables as the biggest reasons for rising prices. "Oil prices have recently been driven by technical matters such as events in Alaska and the North Sea. Also, the weak dollar and speculation have added to this, pushing oil prices higher, especially Brent [oil]," OPEC said.

Indeed, the dollar's value and oil speculators have played roles. Because oil is priced in dollars, its value tends to grow when the dollar weakens, as it has in the last six months. Also, investors use oil as a hedge against a weaker dollar or as an alternative asset, which has helped push crude's price up as well.

Will Oil Prices Stay in the "Dangerous Zone"?


But the growth in global oil demand, which the IEA expects will rise to 89.1 million barrels per day in 2011 from 87.7 million barrels daily in 2010, can't be ignored as a factor in higher crude prices.

In OPEC's defense, the group already has increased oil production recently. The IEA estimates that the cartel pumped 29.58 million barrels per day in December, representing a rise of 250,000 barrels per day from November.

But that hasn't been nearly enough to stem the rising oil prices. After all, the rate of 29.58 million barrels per day remains well below the 32 million barrels per day that OPEC produced in mid-2008, and the IEA estimates that the group is holding out roughly 5 million barrels per day of spare production capacity.

If the dollar strengthens by 20% to 30% -- and stays there -- or stocks see a long-term boom that forces money out of oil, the price of oil would fall. But absent those two trends, it's hard to see how to limit oil price gains without increasing oil production. And that would mean that oil prices would likely move further in to "the dangerous zone" for the U.S. and global economies.

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commandervick

It already has affected markets all over the world in a negative way.It is one of the chief reasons home prices are down because people remember the price of oil at 150.00 a barrel crashed the markets all over the world.what are you going to do.Eat,go to work,needs fuel, or pay that mortgage. If we do not see a drop in oil to a consistent price removed from speculation,not just us but the whole world will fall.And this time there will be no bailout for anyone.It will be a disaster of biblical proportion caused by the greed of a few,in a world of plentiful supply.

February 13 2011 at 4:24 AM Report abuse rate up rate down Reply
James Smith

Greedy ass people are to blame whether it is OPEC, traders or the gas manufactures.

January 24 2011 at 2:34 PM Report abuse +1 rate up rate down Reply
joangrenada

The Bilderberg group set the future price at $150 per barrell back in 2008. Looks like we are heading that way! Who will need cars? Better buy a horse.

January 24 2011 at 2:13 PM Report abuse +3 rate up rate down Reply
ajgorm

Communities where we walk to work and farm at the same time making sure we dont litter and spit and fire off guns along the way.

January 24 2011 at 1:03 PM Report abuse +1 rate up rate down Reply
1 reply to ajgorm's comment
ajgorm

Ohh wait we must drive 2 hours to work on crowded freeways in SUV's and deal with road rage and semi trucks and import our goods just to survive. Two week vacations and roads to nowhere , what a life. Some day they will look back at us as the age of the dieing Gasosauruses. It cant last forever ,,,can it ? Two bicycles in every garage and public transportation for all.

January 24 2011 at 1:10 PM Report abuse +2 rate up rate down Reply
richsonny61

THIS US GOVT RESPONSE :GOT A FLAT TIRE -SHOOT OUT THE OTHER 3!!!

January 24 2011 at 12:56 PM Report abuse +4 rate up rate down Reply
richsonny61

CHECK THIS OUT- SOMETHING VERY SIMPLE BUT- TO SIMPLE TO WORK : THIS IS ONE POSSIBLE HELP TO OUR PROBLEMS (IT MITE BE CENSORED FOR ITS REAL COMMON SENSE APPROACH) SOLAR PANELS ON OUR HOMES WILL HELP SAVE- (NOW DONT SHOOT ME )- RESOURCES-JOBS-ELECTRICITY- THE ENVOIRMENT- MONEY -OUR FUTURE- STRESS- GOING POSTAL- AND MORE (BUT-YES YOU ARE RIGHT IT WOULD HURT TO MANY INDUSTRIES THAT COULD MAKE THIS COUNTRY COLLAPSE! ) ITS BETTER WE LET-THOSE KNOW MORE THAN US DRIVE THIS COUNTRY OFF A CLIFF -BECAUSE WE DONT UNDERSTAND HOW THINGS WORK ? SORRY GUYS -BUT THATS WHAT I WOULD DO WITH A TRILLION DOLLARS AND LEAVE THE OTHER 13 TRILLION IN THE BANK TO HELP SAVE MY COUNTRY- OH!- THATS RIGHT- THIS IS NOT MY COUNTRY- ITS THEIRS !

January 24 2011 at 12:46 PM Report abuse +3 rate up rate down Reply
bam2microa

Here is the reason for Oil Price gouging. Stop the parasites.

The CFTC was established by Congress in 1974 specifically to prevent speculation from artificially inflating the price of commodities. Over time, its powers were slowly stripped. The scope of the CFTC's power to regulate is limited to trading within the formal setting of the New York Mercantile Exchange (NYMEX). Traders on this exchange must file daily reports on exchanges so the commission can keep an eye on speculation. But speculators were able to make an end run around the CFTC's regulatory power, thanks to help from oil giant Enron.

Bankrupt energy company Enron was instrumental in creating a loophole in the regulatory powers of the CFTC, which led to a boom in oil speculation.
The year 2000 was a bad one for consumers as far as oil goes. Prices remained low (less than $30 a barrel), but mechanisms were set in motion that would raise prices and vastly increase oil company profits. That year, Congress (under lobby by Enron and other oil companies) removed the regulatory powers of the CFTC over American oil futures traded over the counter (OTC) [source: Levin]. Enron had created specialized software that allowed futures to be traded OTC -- exchanges outside of the formal exchange markets. The software and what came to be known as the Enron loophole for OTC trading allowed futures exchanges without government oversight.

January 24 2011 at 12:40 PM Report abuse +3 rate up rate down Reply
imme534333

"Speculation" as the word is often used now means gambling on the future price of a commodity. Since betting on what the price will be at some point in the future neither adds nor subtracts the amount of the commodity on the market, how does it make the price move?

January 24 2011 at 12:40 PM Report abuse rate up rate down Reply
dgmunity

What recovery??????? Oil costs more because it is harder to get to and the transport system is in need of repair. Not to mention refinery capacity has not been built up. And then of course there is the greed..............

January 24 2011 at 12:29 PM Report abuse rate up rate down Reply
bam2microa

Here is some good reading on why oil prices rise. http://money.howstuffworks.com/oil-speculation-raise-gas-price.htm/printable

January 24 2011 at 12:25 PM Report abuse rate up rate down Reply