12th January 2011
Oil reached $98 a barrel this week in London, its highest level since 2008, with Kuwait predicting it could rise as high as $110 in as little as a fortnight.
With rising oil prices come rising fears about inflation and such fears may well be merited.
Rowena Mason, the Telegraph's energy writer says oil may be rising in part because of a leaking Alaskan pipeline which links a key oilfield to the rest of America and because of the heavy snows in the US. Snow has settled in 49 of the 50 states with only Florida spared.
However Brent crude – the London price – is trading higher than the US measure known as West Texas Intermediary which is around 10 per cent lower.
Mason suggests this is the result of more speculation in the London market while FT Alphaville suggests that the US measure is underpricing the real cost.
All analysts agree that it is bad news on the inflation front however both in terms of petrol and food prices with food very reliant on energy and transport costs.
Earlier, this week the White House Oil Spill report didn't help prices either as Yahoo reports below.
There is some good news for some. First in terms of BP, most feel that blame has been shared with others, which should help the BP share price this year. The report places a lot of blame on the US system of regulation for offshore drilling, as Interactive Investor reports here, and it suggests the impact may therefore be sector wide.
The Telegraph provides a handy round up of oil industry analysts' views.
It quotes Paul Sankey, Managing Director, Deutsche Bank Oil, Equity Research saying:
"We think the level of (US offshore) activity is going to be, by definition, lower, and that you'll never see the peak from before the accident. The broadness of these recommendations and lack of specifics will delay activity."
However, many domestic commenters are most worried on the inflation front.
On the Telegraph, commenter dickgreendoxon believes the culprit is quantitative easing and that governments are far too relaxed about it.
"Whose money are they playing with? The US/UK QE programmes are effectively lending free money to the banks, a large portion of which is finding its way into market speculation (Bernanke actually thinks rising stock markets, in relatively stagnant economies, is a good thing)."