Oil is up nearly a dollar this morning, making May's $10 rise the biggest since 1999. This is an argument for OPEC's curious ineffectuality: This week they refused to reduce quotas, admitted that members are cheating, noted that inventories remain ridiculously high--and still the price rose! Here's OPEC Secretary-General El-Badri saying that the rise is based on "sentiment." (He also pulls a lovely Orwell when describing quota cheating as 79% compliance.)
So what are these sentiments? Possibly it's hedge funds entering the crude market in response to the fall of the dollar. Perhaps it's an excess of optimism about the economy, coupled with solid week of warnings from everyone about the likelihood that oil prices will rise when we come out of the recession that has created a little whirlwind of expectation that prices have to rise eventually.
But the scary thing is that if we are coming out of the recession, and oil prices are rising, it's likely we won't get out of the recession. Jim Hamilton of Econbrowser has written about how high gas prices delivered the "knock out punch" to the US economy last summer. Here he is blogging on the subject in the Washington Post last week.
Since, um, cellulosic biofuels aren't going to be arriving anytime soon, now would be the time to start planning scenarios to quickly reduce oil consumption in the event of a price spike. Hate to say it, but: 55 mph speed limit?