An Important Psychological Barrier Falls, One More to Go

An important psychological price barrier for oil fell in after hours trading when November futures topped $90/barrel. There is only one barrier left - $100. What worries me most is that we have yet to see the crude oil increase at the pump, but if it is sustained we will see it in the grocery store either later this year or in Q1 2008. Also at what point do persistent oil related increases begin to stall the consumer spending? My guess is some where between $90 - $120. Text in bold is my emphasis. From Bloomberg:

Crude oil breached $90 a barrel in New York for the first time as the dollar traded near a record low against the euro, enhancing the appeal of commodities as an investment.

Investors purchased oil on speculation the Federal Reserve will cut borrowing costs to bolster the U.S. economy when policy makers meet on Oct. 31. Oil futures set records the past four days on concern supplies from northern Iraq may be disrupted if Turkey takes military action against Kurdish rebels.

Crude oil for November delivery rose to $90.07 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since trading began in 1983. Prices were up 53 cents on the day at $90 at 11:40 a.m. in London.

``The search for explaining the price development during this week leaves three elements outside the market fundamentals namely, the role of speculators, geopolitical developments in the Middle East and the weakness of the dollar,'' PVM analysts led by Johannes Benigni wrote in a report today.

The U.S. currency fell to $1.4302, from $1.4279 yesterday, and traded at a record low of $1.4319 earlier.

A lower dollar makes oil cheaper in countries that use other currencies. In U.S. dollars, West Texas Intermediate, the New York-traded crude-oil benchmark, is up 46 percent so far this year. Oil is up 35 percent in euros, 40 percent in British pounds and 42 percent in yen.

The Organization of Petroleum Exporting Countries, agreed last month to produce an extra 500,000 barrels a day starting on Nov. 1 to meet rising demand. World oil consumption peaks in the fourth quarter, when refiners make heating fuel for winter.

``Additional output from OPEC won't affect the market that's reacting to non-fundamental factors,'' Maizar Rahman, Indonesia's OPEC governor said in Jakarta today. ``The weakening U.S. dollar is prompting investors to move funds to commodities futures from currencies.''