More and more analysts are predicting crude will hit $85 before the end of the year. Their arguments are compelling. Demand is likely to rise as the recession ends in the U.S., Japan, and the E.U., which are the traditional leaders in crude use. But the BRIC nations (Brazil, Russia, India and China) are now driving crude prices as their economies grow and their needs for transportation and infrastructure expansion increases.
The other side of the oil coin is that some of the traditional large producers like Mexico are finding that their fields are aging and that the yield from these fields is decreasing. There is no guarantee that the producing nations can quickly turn open the hose and keep up with demand if it starts to spike later this year.
The fact of the matter is that oil prices could be one of the greatest threats to a sustained economic recovery. The drop of crude prices from $147 last summer to under $40 earlier this year probably kept the economic catastrophe from being even worse than it was. Consumer and business spending will be hit if gas prices start to move back above $3.
Douglas A. McIntyre is an editor at 24/7 Wall St.
