Article first published as Oil Prices Hit Post-Crisis Peak Levels on Technorati.
Oil prices are at its peak for the first time after the worst financial crisis since the great depression in1930s that erupted in September 2008 worldwide. Peak levels have been reached on both sides of the Atlantic Ocean i.e. in North America and Europe.
In Europe, Brent crude futures hit $91.58 per barrel while West Texas Intermediate in the US touched $89.35 per barrel, both being highest levels since the financial crisis of September 2008. However, these levels are well below the pre-crisis peak levels. Prior to the financial crisis, due to speculative bubble in House building sector, all commodities prices along with crude price were flying high in the sky. Brent Crude price was pushed up to $147.50 per barrel.
Factors of Crude Rally
There are several reasons that drove crude price to its peak level. Primary factors have been:
The relatively rising demand due to global recovery though not equalled with pre-crisis demand: This is a long-term factor assuming that a double dip does not occur. The US spent $1.7 trillion as part of “Quantitative Easing 1” that extended unemployment benefits, reduced tax rates for both corporates and consumers and increased liquidity in the market and absorbed toxic mortgage housing loans that became biggest impediment for post-crisis growth of the economy. In addition to this, the US government announced QE2 programme i.e. second stimulus programme in November to buy treasury bonds thereby releasing more printed dollars into the economy. Reports are coming that the Fed is thinking of increasing QE2 money, originally set at $600 billion. If that happens, prices of all commodities including crude oil will increase further.
Cold weather in Europe: This is a short-term factor, which will last up to the end of winter season. All European countries are shivering with cold weather spread across Europe continent. Cold weather increases the consumption of fuel, which in turn increases fuel prices as demand increases.
Weak US dollar: This is going to be a long-term factor if the US extends QE2 program. With the announcement of QE2 worth $600 billion by the US government in November to be implemented over next six months, supply of dollars increased by the US treasury department. Excess supply of dollars influences all commodity prices including fuel around the world, as this money will flow to the emerging market economies (EMEs) in search of better returns as the US bank rate is kept at historically low levels since the financial crisis.
BBC news informs that several banks are increasing their forecasts for oil prices in the background of factors mentioned above. Rising oil prices may satisfy oil cartels but will reduce the chances of middle and lower class consumers to divert at least part of their money to buying consumer durables. Unemployment rate has increased to 9.8% in November from 9.6% in three months prior to November. Ultimately, there is a chance of rising oil prices pushing the GDP growth rate downwards.