Oil prices hit $90 milestone, highest in two years

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Oil prices hit $90 milestone, highest in two years

08:20, December 08, 2010      

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Oil prices on Tuesday jumped above $90 a barrel for the first time in more than two years, a key milestone for Wall Street analysts who say tightening supplies will eventually drive prices above the $100 in 2011.

The recent surge in oil pushed gasoline and other fuel prices higher as well. Average heating oil and diesel prices are expected to increase year-over-year for the first time since 2008, and the U.S. Oil Price Information Service said gasoline prices may hit a national average of $3 per gallon before Christmas.

The price increases probably won't be enough to affect holiday shopping, but U.S. consumers will eventually pull back on spending at the start of 2011, The Associated Press quoted OPIS chief oil analyst Tom Kloza as saying.

"This sets up a very shaky January," Kloza said. "People are still going to drive to grandma's house. They're going to take it out on the economy later." Kloza said gasoline could rise to between $3.25 and $3.50 a gallon by spring.

On Tuesday benchmark oil for January delivery gave up 69 cents to settle at $88.69 a barrel on the New York Mercantile Exchange. The contract hit $90.76 a barrel earlier in the day, the highest price since Oct. 8, 2008.

Oil prices had been relatively stable for more than a year, wavering mostly between $70 and $80 per barrel. They've moved higher since the Federal Reserve announced plans to inject $600 billion into the economy.

Prices crossed the $90 mark early Tuesday as President Obama and Republican leaders hammered out an agreement to extend Bush-era tax cuts. A cold snap also swept through Europe and the U.S., lifting demand for fuel.

Wall Street analysts now predict that oil will hit $100 per barrel sometime next year. They point to rising demand from China and other emerging economies.

Independent analyst Jim Ritterbusch said Saudi Arabia and other OPEC members may increase production if oil grows any more expensive. Higher energy prices can stifle economic growth and force consumers to conserve fuel and turn to alternative energy sources.

Agencies
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