Oil soars 2.1% to $86.61 a barrel; gasoline prices edge higher

Oil futures prices soared Monday to the highest level since October 2008 and retail gasoline prices edged up as belief in the U.S. recovery from the global recession gained strength.

But economists and energy experts worry that rising oil prices could put the squeeze on consumers and businesses as higher costs find their way to the gasoline pump.

“It’s clear that the economy is on the right track,” said Fadel Gheit, senior energy analyst for Oppenheimer & Co. in New York. Yet, he added, rising oil prices “will clearly begin to affect economic growth.”

By some estimates, every penny increase in average gasoline prices is equal to pulling $1.5 billion a year from the pockets of U.S. consumers.

“If oil stays at this price or goes higher, it will put a crimp on consumer spending,” said David Shulman, senior economist for the UCLA Anderson Forecast. “It will make the economic recovery weaker, and too many people are ignoring the impact this will have.”

Crude oil for May delivery climbed $1.75, or 2.1%, to $86.62 a barrel on the New York Mercantile Exchange, after hitting $86.90 in intraday trading, as the Standard & Poor’s 500 index rose to 1,187.44, an 18-month high. Crude oil futures have increased 65% over the last year.

Gasoline futures for May delivery also hit an 18-month high, increasing 2.65 cents, or 1.1%, to $2.3502 a gallon.

Retail gasoline prices continued a steady march higher around the nation, according to the Energy Department’s weekly telephone survey of filling stations.

The U.S. average price of a gallon of regular gasoline rose to $2.826 a gallon, an increase of 2.8 cents from a week earlier, the Energy Department said Monday. California motorists paid the highest price, but the state’s average rose just a tenth of a penny to $3.088.

A year ago, a typical gallon of gasoline was 78 cents cheaper in California and 79 cents cheaper nationally.

Oil traders were reacting to a flurry of encouraging news during the last few days, including Friday’s Labor Department data showing that U.S. payrolls had risen by 162,000 in March and Thursday’s reports from automobile manufacturers indicating that sales had accelerated in March by more than 24% from the same month a year earlier.

On Monday, the National Assn. of Realtors said signed contracts on pending sales for previously owned homes rose by more than 8% in February, the biggest increase since October 2001. The Institute for Supply Management also said that U.S. service industries in March grew at their fastest pace in nearly three years.

Oil trading “is getting some traction from vehicle sales, including trucks,” said Gheit, the energy analyst. “The truck sales are up 75% compared to a year ago, and that’s an indication of strong job creation among small businesses.”

Phil Flynn, an analyst with PFGBest Research in Chicago, said fear was also a factor in oil’s rise.

Many of the world’s biggest oil companies have committed major capital spending to the development of Iraq’s biggest oil fields, Flynn said, and continued bombings in that country were causing jitters in the oil markets.

Gheit said volatile petroleum prices could move higher as investors look for better returns -- or could just as easily drop because market speculators had added at least a $20- to $25-a-barrel premium to oil futures. The bubble would burst quickly if the market returned to supply-and-demand fundamentals, he said.

“The last time this happened, oil prices collapsed by 60%,” Gheit said. “We are going to repeat the bubble, and we will have no one to blame for the pain but ourselves.”