The price of oil again set a record Tuesday, easily blowing through the previous high earlier this month, in a move some analysts said was absurd because there was no solid, supply-and-demand reason for it.
"Very overdone," commented Mark Vitner, senior economist at Wachovia.
"Fundamental reasons? I don't see any," said James Williams, economist at WTRG Economics.
West Texas Intermediate crude oil, the benchmark also known as light, sweet crude, for January delivery settled at $98.03 per barrel at the close of open-outcry trading on the New York Mercantile Exchange on Tuesday afternoon. That was a hefty $3.39 more than the closing price Tuesday, a 3.6% gain. It was $1.33 more than the previous record, $96.70, set Nov. 6.
Prices inched up in worldwide electronic trading later Tuesday and ended that session at $98.11 before the restart of electronic trading Tuesday night that's considered the opening of the Wednesday session.
Before recent jumps in oil prices, data from the Energy Information Administration showed the highest price, adjusted for inflation, was $93.48 in January 1981. But that was surpassed Oct. 29.
Consumers don't buy barrels of oil, but they buy gasoline made from oil, and if the price of crude oil were to hit $100 and "it stays there for three or four months, we'll have $4 gasoline," Vitner said.
Oil at $100 and gasoline at $4 "are real" benchmarks in people's minds, said Dan Ariely, professor of behavioral economics at MIT's Sloan School of Management. Such prices "would make it apparent to people how much they are paying and remind them how much they used to pay."
It's a painful jolt that could change buying behavior. Automakers have been saying that $4 gasoline probably is a tipping point that would overhaul auto buying in favor of smaller and more fuel-efficient vehicles.
The nationwide average price for regular-grade gasoline was $3.09 per gallon, travel organization AAA reported Tuesday, down 0.5 of a cent overnight.
Hitting $100 a barrel either could erase a psychological barrier to even higher prices, or it could trigger a been-there, done-that mentality. "You know, 'Now we've hit $100 and we're done with that,' and prices drop back $20 or $30 to something more consistent with supply and demand," Williams said.
Oil suppliers could be shooting themselves in the foot in allowing prices to rise so much. "At this price, you can guarantee there will be energy legislation in the U.S. that reduces the demand for oil," Williams said. "At these prices, other (types of energy) make sense. We can get things other than petroleum that will drive us down the road."
Negative U.S. economic news Tuesday pushed down the value of the dollar. Oil is priced in dollars, so it suddenly took more of them to buy oil. The Federal Reserve also forecast slowing growth and tame inflation next year.
But, Williams said, that can account for no more than $1 of the price jump.
"Other excuses — it's close to that — for the increase are a fire at a 100,000 barrel-per-day refinery in Canada," Williams said. "It's not a really big thing — about 0.1% of world oil production — but it seems to move prices anyway."
Add what Vitner called "a lot of saber rattling by the energy nations that are the least friendly to the U.S., such as Venezuela and Iran, talking about not taking dollars for oil."
Noting that food prices seem to be rising as steeply as energy prices, Vitner said, "The way things are going, we'll all have to go on diets and walk to work."