Oil prices closed above $60 a barrel for the first time Monday, continuing an upward march that could choke global economic growth, some analysts said.
The price for a barrel of oil for August delivery closed Monday at a record $60.54 on the New York Mercantile Exchange.
“This is a real price,” said John Harpole, president of Mercator Energy, an energy-services broker in Littleton. “This is an awakening for all the energy folks.”
Concerns over the election of conservative Mahmoud Ahmadinejad as president of Iran fueled the price rise Monday, traders said. He is expected to favor domestic producers over foreign firms, slowing production gains.
But the highs reflect a fundamental tightening between supply and demand, one that most analysts predict won’t disappear soon.
The world consumes 84 million barrels a day but only produces about 85 million barrels, leaving very little spare capacity, Harpole said.
Negative news out of producing countries can push oil prices higher.
Crossing the $60-a-barrel threshold carries more psychological than financial importance. Adjusting for inflation, prices are still lower than levels seen between 1979 and 1983.
But consumers don’t think in inflation-adjusted terms when it comes time to fill their gasoline tanks, said Mary Greer, a spokeswoman with AAA Colorado.
“It is going to show up at the gasoline pump,” Greer said.
The average price for a gallon of unleaded gasoline increased from $2.12 on Wednesday to $2.16 on Friday, she said.
Given that it takes about 45 days for a barrel of Middle East crude to show up locally as gasoline, the recent jump in oil prices likely will show up in August.
Additional money spent on gasoline represents money that can’t be spent on other items, said Mohammed Akacem, an economics professor at Metropolitan State College in Denver.
“There is a negative wealth effect,” he said.
How much? Every $10 increase in the price of a barrel of oil shaves about 0.5 percent off economic growth, estimates Merrill Lynch’s chief North American economist David Rosenberg.
Oil-price increases so far this year could shave 1 percent off the nation’s economic growth, resulting in more restrained corporate spending, less robust job growth and lower wage hikes. The nation’s gross-domestic-product growth was 3.5 percent in the first quarter of 2005.
Come this winter, the oil crunch could translate into higher natural-gas and home heating costs, Harpole predicts.
Only about 10 percent of the state’s petroleum production represents oil, meaning a limited windfall for producers in the state, said Ken Wonstolen, senior vice president for the Colorado Oil and Gas Association.
Even major producing countries probably aren’t rejoicing at $60-a-barrel oil.
“OPEC could keep prices here if they want to, but it makes them nervous,” said Carol Dahl, a professor at the Colorado School of Mines.
Higher prices will force consumers to get serious about conserving energy and developing alternative sources.
Dahl, however, doesn’t see a problem with global oil reserves so much as a shortage of production capacity, one that should adjust with higher prices.
“I expect these are abnormally high prices,” Dahl said. “It does not cost OPEC $60 to produce a barrel of oil. It costs them $5.”
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
