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Oil Snaps Back As Markets Sense Post-Election Bounce

Signs of recovery may also lead to spike in gas prices

November 4, 2008

The economy may not be in such dire shape after all. That's the good news.

The bad news? A faster than expected return to economic growth will likely reverse oil's dramatic decline, as rising demand pushes prices upward again. That means those falling gasoline prices consumers have enjoyed lately could quickly become a thing of the past.

With the optimism that any new administration brings, Wall Street has already started an impressive rally and Tuesday, oil prices jumped on the bandwagon. The price of crude rose more than $7 a barrel to $71.14 a barrel around Noon on the New York Mercantile Exchange.

Analysts said oil also got a boost from the falling dollar, which fell three percent against the euro. Commodity prices were also sharply higher.

Gasoline prices remain at the lowest levels in well over a year. On Tuesday the nationwide average of unleaded regular was $2.391 a gallon, according to AAA. That's down about 11 cents since Friday and is down more than 60 cents a gallon a year ago.

Oil prices have fallen rapidly, in concert with oil prices, over the last six weeks. The decline was set off in large part by the credit crisis on Wall Street, and warnings of an impending recession on Main Street.

Prices had been steadily falling from their mid-July highs because of declining demand. Oil traders began selling their positions in mass when the financial meltdown set off alarm over an impending global recession, caused by a lack of credit.

Since then Western government have worked in concert to lower interest rates and inject liquidity into the financial system. Also, the real estate market has begun showing signs of life after prices have fallen into a range attractive to both speculators and home buyers.

Some analysts have predicted a tough winter and spring, but call for a slow recovery beginning next summer.

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