(c) Patrick DeHaan, 2008
Oil prices broke out of their well established range this morning, signaling that further gains are likely.
After spending several months bouncing between $75 and $85/bbl, prices quickly moved higher overnight and into this morning as global markets moved higher after the Fed's injection announcement yesterday afternoon.
The U.S. dollar, the currency that oil is traded in globally, took a huge hit after the announcement, increasing the exchange rate to $1.42 for one euro. Typically, oil prices rise when the U.S. dollar weakens as it makes the commodity cheaper for countries using other currencies. Oil also is pressured higher as the dollar weakens as investors put money into commodities as a hedge against rising inflation.
What this means for the average motorist is that higher prices are certainly ahead. The next week will be paramount to where oil prices go from here. Things are very uncertain now that we've eclipsed $85. On my radar is $90/bbl oil and a national average that could soon approach $3/gallon.
With refiners still undergoing maintenance, there is additional pressure for prices to rise as inventories continue to dwindle (see the DOE report highlights blog post from yesterday).
It's not doom and gloom here folks- but let's face it- more money will be going to gasoline costs this winter than last.
For motorists in Indiana, Michigan, Illinois, Ohio, and Kentucky- you may be at risk of a price hike to over $3/gallon tomorrow. Be prepared for it.