Oil passed $100 a barrel, with prices expected to keep rising

The price of a barrel of crude oil tipped past the $100 mark this weekend, with Brent crude edging closer to $115.

With the arrival of triple digit prices, it’s a good time to take stock of where the oil market is, where it’s heading, and what that means for the economy.

It took a month for oil to go from $60-something a barrel to $100. Hugh Daigle, a professor of petroleum engineering at the University of Texas at Austin, said, believe it or not, that’s actually the market showing restraint.

“Now that we see that this may be a prolonged conflict, I would bet that it’s more likely that the prices will climb faster than they have over the past month,” he said.

Markets are finally pricing in the war, and will do so even if it were to end tomorrow.

“It would take months for the price to come back to kind of that February baseline, if it ever does,” Daigle said.

There’s a saying in the oil industry that prices go up like a rocket and come down like a feather. That’s especially true in this case, Daigle said, because of damage to oil and gas infrastructure around the Persian Gulf.

“That’s the sort of thing that’s gonna make these high prices persist for a long time,” he said.

For consumers, $100 a barrel is also a turning point because it translates to moving from $3-something to $4-something for a gallon of gas.

“You know, in the United States, the great Satan is high gas prices,” said Tom Kloza, chief energy advisor at Gulf Oil.

He said $4 is a big hurdle for people’s minds and wallets.

“I do think that once we go above $4, and we’ll cross that bridge in the next 24 hours, then you start to worry about demand destruction,” Kloza said.

Demand destruction means consumers will pull back on driving, and spending in general.

How high oil and gas prices go depends on how long the war lasts and how long it takes for the Strait of Hormuz to reopen.

“For each day that doesn’t happen, the situation gets more severe,” said Alan Gelder, senior vice president of refining, chemicals, and oil markets at Wood Mackenzie.

The International Energy Agency recently released 400 million barrels of oil reserves. Gelder said it will take about a month to burn through it all.

“So if this continues to last further than that, then the situation just exacerbates itself,” he said.

Gelder said oil, at a sustained price of $125 a barrel, could cut into global GDP growth by as much as half. Oil at $150 or above would mean serious danger for the economy, he said.