NEW YORK – 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 mark next year.
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 Oil Price Information Service said gasoline prices may hit a national average of $3 per gallon before Christmas day.
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, OPIS chief oil analyst Tom Kloza said.
"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."
Overnight, the national average pump price added less than a penny to $2.958 a gallon, according to OPIS, auto club AAA and Wright Express. A gallon of unleaded is 11 cents higher than it was a month ago and 32.6 cents higher than it was a year ago.
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. OPEC countries can crank up production to meet that demand now, but their ability to do that is expected to decline over the next few years.
Morgan Stanley estimates that spare production capacity will be cut in half in two years, falling to levels seen in 2007 and 2008, once again raising tensions about supplies and the world's thirst for oil.
Already, the International Energy Agency notes that supertankers are storing less oil offshore, and experts predict supplies will tighten elsewhere.
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. "They don't want high prices to create another crash in consumption," Ritterbusch said of OPEC. "They want stability."
In other Nymex trading in January contracts, heating oil fell less than a penny to settle at $2.4702 a gallon, gasoline futures gave up 1.87 cents to settle at $2.323 a gallon and natural gas lost 9.5 cents to settle at $4.393 per 1,000 cubic feet.
In London, Brent crude fell 6 cents to settle at $91.39 a barrel on the ICE Futures exchange.
Associated Press writers Pablo Gorondi in Budapest, Hungary and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.