“Anytime the economy spends 4 to 5 percent of GDP on oil, then you’re getting close to stall speed,” says Jason Stevens, an equity analyst at Morningstar. “We saw this last year when Libya and Japan blew up, and prices went through the roof. Demand pulled back a bit, but growth certainly slowed.”
Strangely, the current run-up in prices comes despite sinking demand in the U.S. “Petrol demand is as low as it’s been since April 1997,” says Tom Kloza, chief oil analyst for the Oil Price Information Service. “People are properly puzzled by the fact that we’re using less gas than we have in years, yet we’re paying more.”
Kloza believes much of the increase is due to speculative money that’s flowed into gasoline futures contracts since the beginning of the year, mostly from hedge funds and large money managers. “We’ve seen about $11 billion of speculative money come in on the long side of gas futures,” he says. “Each of the last three weeks we’ve seen a record net long position being taken.”
