WASHINGTON – Oil prices climbed Tuesday and briefly surpassed $60 a barrel — a level economists described as a worrisome, though not alarming, sign for global financial growth.
After reaching as high as $60.10 a barrel, light sweet crude for August delivery settled 84 cents higher at $59.59 a barrel on the New York Mercantile Exchange (search). On June 27, front-month crude futures settled at $60.54 per barrel, a record high on Nymex, where oil has been traded since 1983.
Nymex gasoline futures surged 3.33 cents to settle $1.6818 a gallon, while heating oil futures jumped 2.13 cents to settle at $1.7324 per gallon.
In London, Brent crude futures rose 68 cents to $58.30 a barrel on the International Petroleum Exchange.
Energy traders cited a tropical storm in the Gulf of Mexico (search) as the leading factor behind Tuesday's rally. Last year, Hurricane Ivan (search) hampered the region's oil production and refining and brokers are worried that a similar event could reduce supplies once again.
Tropical Storm Cindy (search) isn't expected to disrupt supply or do any damage, but it is still "causing a little bit of pressure in the market," said oil analyst Carl Larry at Barclays Capital in New York.
Another reason oil prices are moving higher at the start of the third quarter is that institutional investors who had taken profits in May and June are now buying energy futures once again, Larry said. "That's the speculative interest in the market," he said.
Economist Nariman Behravesh at Global Insight said $60-a-barrel oil "will further slow economic growth in the United States and worldwide, but not by a lot."
He said European nations that are most dependent on oil imports would feel the greatest pinch. He cited as evidence the Italian government's declaration on Tuesday that it expects zero economic growth in 2005. Behravesh said Japan will also suffer due its reliance on imported fossil fuels.
In the U.S., however, Behravesh said the impact would not be as severe because the country still produces around 40 percent of the oil it uses and because energy efficiency has improved significantly over the past 25 years.
"It's easier for us to absorb these high oil prices," he said.
Economist David Resler at Nomura Securities was less sanguine.
"I don't believe $60 a barrel can be sustained because it seems to me that it would slow the global economy enough to generate a reduction in demand and, therefore, lower prices," he said.
Resler said he would expect to see a drop in consumer spending, followed by a decline in business spending if crude futures were to remain at these levels.
Energy futures continue to be supported by concerns about limited excess capacity in oil production and refining around the globe. Concerns about terrorism, the war in Iraqand labor strife in oil-producing nations such as Nigeria and Norway have also fed fear into the market.
Crude futures are about 60 percent above year ago levels, though still below the inflation-adjusted high above $90 a barrel reached in 1980.
In spite of all the worries about potential supply disruptions, analysts and brokers concede that there is plenty of oil and gasoline to meet current demand.
Mark Bugg, the scheduling manager at Louisiana Offshore Oil Port LLC (search), said strong waves and wind suspended the offloading of an oil tanker at the company's offshore facility, but that its onshore terminals continue to supply refineries with all the petroleum they need.
Bugg said that, based on current weather forecasts, he expects the offshore facility to be up and running again by late Wednesday.