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By Robert Rapier on May 21, 2008 with no responses

Crude Cracks $130

I am still trying to extract myself from underneath an avalanche of e-mails, but thought I would post just a bit on oil prices, which are again in record territory:

Oil passes $130 for the first time

In the past year, crude oil prices have more than doubled, pushing retail gas prices higher.

The price of a gallon of regular unleaded gasoline hit a record high for the 14th straight day, according to AAA’s Web site.

The nationwide average for a gallon of regular unleaded rose to $3.807, up from $3.80 the previous day and up 19% from year-ago levels.

Global demand has been increasing much faster than supply. In particular, demand for diesel fuel in China, India, the Middle East and South America has made it very difficult for suppliers to keep pace.

The direction of prices has not been a surprise to me, but the speed that they have climbed has been. Last summer, when oil was still bouncing in the $60′s, I said I thought it would crack $100 in 2008. It only missed one trading day by cracking that in 2007, and has been on a tear since fall. Right now prices are about a year ahead of where I had forecast them.

How high will prices go? In the long run, I can’t make a good case for any particular top. They could go much higher. In the short term, I never try to guess the direction. But I am certainly not in the $40 oil camp. Those days are history. The days of $80 oil may even be history, and if that is the case the economy will continue to be in for a rough ride.