NEW YORK (CNN/Money) - The temperature is dropping and so is the dollar. The result: Energy prices have jumped and they could go higher still before the winter is out.
It was a big day in the energy markets Monday, as traders came in from their New Year break to forecasts that a blast of Arctic cold would, contrary to the previous week's forecast, make its way to the Northeast. On the New York Mercantile Exchange, oil for February delivery jumped $1.26 to $33.78 a barrel.
Natural gas rose more than 10 percent and looks poised to hit its highest levels since the spike that sent it to all-time highs late last winter. Chronic underinvestment in the natural gas complex has left very little wiggle room in the market for supply disruptions or surges in demand. The potential for more spikes like last year's and the one that greeted 2001 seems very real.
Meantime, despite pressure from the United States and the Energy Information Administration, the Organization of Petroleum Exporting Countries has shown no inclination to loosen up inventories or increase production -- even though at $29.85, the basket of seven crude oils OPEC tracks is above the target range of $22 to $28 a barrel.
Monday, OPEC President Purnomo Yusgiantoro said there were "non-fundamental factors" driving oil prices higher -- almost certainly a reference to the falling greenback. Oil is priced in dollars, and with the dollar's drop of 15.6 percent over the past year against the United State's major trading partners' currencies, the international purchasing power of OPEC's oil revenues has declined.
When OPEC next meets Feb. 10, it may shift its target range higher -- or even revise it to factor in other currencies.
The good news is that the economy has become strong enough to weather higher energy prices better than in recent years. According to Morgan Stanley chief U.S. economist Richard Berner, Brent crude averaging $35 a barrel in 2004 -- about $7 higher than he expects -- would nick 0.3 percent to 0.5 percent off of U.S. growth. Since he expects the economy to grow 4.5 percent, that's not much of a problem.
And since their currencies are appreciating, other countries wouldn't feel quite the pinch.
Still, there are implications for investors. Money that consumers put into their furnaces and their gas tanks is money that they don't spend at the stores. Automakers, retailers and big ticket goods makers could make a little less money than investors think. Energy companies could make more.
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