Crude Oil Prices Close Above $40 a Barrel

Crude oil prices closed Monday above $40 a barrel for the first time since 1990, reflecting increased demand for fuel by an expanding global economy.

Crude oil for June delivery rose $1.13, or 2.9%, to settle at $40.06 a barrel on the New York Mercantile Exchange, the highest closing price since Oct. 11, 1990, when Iraq was occupying Kuwait. Prices are up 44% from a year ago.

“A growing economy has boosted demand for oil,” said Carl Larry, associate director of energy futures at Barclays Capital Inc. in New York.

“We concentrate on the price of gasoline because it’s felt by the consumer, but fuels used for transportation of goods and to run factories have also moved higher.”

Saudi Arabia has proposed that the Organization of the Petroleum Exporting Countries raise official production limits -- now at 23.5 million barrels a day -- by at least 1.5 million barrels daily when ministers meet June 3 to review policy.

But even with a modest increase in output, economists see continued high prices and a ripple effect spreading through the economy.

“I would expect the first place to look for negative change is in the automotive industry, particularly those who are promoting and selling SUVs,” said John Blank, director of industry economists at Bank One Corp. in Chicago.

“The airlines, the trucking and the rail industries are going to suffer from $40” oil, Blank said. “If you have the strongest effects on the automotive and transportation industries, you’ve hit distribution in the economy at large. That is really where the economy slows down.”

A significant further increase in oil prices poses a risk to the global economy, the Organization for Economic Cooperation and Development said.

“We should remain vigilant, even if the shock seems to be manageable until now,” OECD Chief Economist Jean-Philippe Cotis said at a briefing in Paris.

U.S. crude-oil inventories probably increased last week for the 10th time in 11 weeks as rising prices kept imports high, according to a Bloomberg survey before a report today from the Energy Department. Gasoline supplies probably increased by 1.3 million barrels from 204 million barrels.

Record U.S. gasoline demand and new regulations have caused prices to surge. U.S. demand peaks between the Memorial Day holiday in late May and the Labor Day holiday in early September, when vacationers take to the highways.

The latest federal gasoline survey, released Monday, showed California prices hitting a record average of $2.223 for a gallon of self-serve regular.