February 24, 2011
Earlier this week, market analysts warned that the price of gas may reach $5 by the end of summer. Now they are saying we could see that price by Memorial Day as the situation in Libya deteriorates.
On the S&P 500 today, the price of Brent Crude breached $119 a barrel during a period of frantic trading. Brent Crude is used to price two thirds of the world’s internationally traded crude oil supplies. The price was below $100 yesterday afternoon.
The world’s oil benchmark jumped almost $17 this week and it appears there is no end in sight as the situation in the Middle East heats up.
Saudi Arabia is under pressure to boost output as the prospect of a Libya production cutoff looms.
Oil traders said Saudi talks with Europe signal that the oil kingdom understands that the political crisis in Libya is now an oil supply crisis.
On Thursday, the Italian oil company Eni, the most active company in Libya, said oil production from the North African country has dropped to just a quarter of normal levels.
“You can only expect the price to go up. It is fear of the unknown. The risks are all to the upside,” a senior oil trader told the Financial Times. “Saudi Arabia needs to respond.”
Popular uprisings spanning the Middle East have yet to seriously affect Saudi Arabia. In an effort to stave off rebellion, earlier in the week Saudi Arabia’s ailing King Abdullah promised to lavish around $37 billion on his subjects. The money will go for housing, education, social security, and other benefits.
In neighboring Bahrain, a similar pay-out scheme failed to stem protests that turned violent. King Hamad had offered to pay $2,650 to every Bahraini family. The protests calling for political change have seriously damaged the small nation’s economy and tourism industry. Standard and Poor’s lowered its credit rating this week and Bahraini authorities canceled next month’s Bahrain Grand Prix Formula One race, the pride of the royal family.
According to Saudi rights activist Hassan al-Mustafa, Abdullah’s spending won’t solve anything. The Saudi people want “real change,” such as an elected parliament and more rights for women. That sort of evolution “will be the only guarantee of security of the kingdom,” explained al-Mustafa.
Hundreds of people have backed a Facebook campaign for a Saudi “day of rage” in March in response to the lack of political change in the kingdom and it solidarity with other popular rebellions sweeping the region.
In response to the unprecedented rise in oil prices, analysts are predicting the price of gasoline will shoot up ten to fifteen cents per gallon over the next few days.
Analytics economist Chris Lafakis put the number even higher. Oil prices have already jumped $12 this week, which means that drivers can “expect gas prices to be 37 cents higher” in the coming days, he told CNN.
The national average price of a gallon of gasoline rose 3.4 cents overnight to $3.228, according to AAA.