NEW YORK (CNN/Money) -
The price of oil toyed with $50 a barrel Friday, a level often described as psychologically significant.
But if there was a real-world impact of approaching that threshold, it was tough to find; analysts agreed that, whether the price was $50.50 or $49.50, it was bad news for the economy and good news for oil-market bulls.
A barrel of crude oil for delivery in September fetched more than $49 Friday morning on the New York Mercantile Exchange, driven higher by a stand-off between Iraqi insurgents and U.S. forces in Najaf and the threat of sabotage at Iraqi oil facilities.
Some analysts believed that, though it once seemedfar-fetched, the world slowly came to accept the idea that $50-per-barrel oil was a real possibility. Now that it's imminent, it's old news.
On Wall Street, U.S. stocks traded higher, and bond prices fell. The dollar gained strength against the euro and the yen. Commodity traders were not preparing for the Rapture.
"It's nothing more than a psychological spot; it's like 10,000 on the Dow," said Frank Lesh, commodity trader at Rand Financial Services in Chicago. "In reality, the markets themselves don't see anything special about that $50 level."
With September's crude oil contract set to expire Friday, Lesh suggested market focus had shifted to the October contract, which was only about $48 a barrel, and at future months' contracts, for which prices fell to about $46.
"We want to see whether or not the following months follow on up out of here after September gets out of the way," Lesh said. "We could be looking at the highs right now."
Analysts focus on trend, not price
But that doesn't mean $50 is necessarily the kind of resistance level technical analysts watch, Lesh said, and other analysts agreed.
"Whether we hit it today or next week, I don't really think hitting $50 is going to give us a downturn," said Jason Schenker, an economist and oil analyst with Wachovia Securities who predicted long ago that the $50 mark would be breached.
On Friday, Schenker said a $55 price tag was a real possibility.
"In the long run, our trend is up," he said.
Not everybody agrees. Some analysts believe the trend is out of line with fundamentals, that the 55-percent gain in prices in the past year has created an unsustainable bubble that will soon burst, leaving the bulls soaked.
Most, however, still believe that, even if oil prices have gone about as far as they possibly can, many of the factors that drove the bull market will stay in place for some time to come, including:
- continuing high demand for oil in growing economies such as China and India
- continuing turmoil in Iraq
- the persistent threat of sudden supply disruptions in a world whose capacity to suck oil out of the ground is already stretched thin
- the onset of winter, when rising demand for home heating oil could push prices back up
"All things considered, it looks like volatility is here to stay, and probably higher prices, too," said Lyle Brinker, an analyst with John S. Herold, an independent energy research firm.
Persistent higher prices hurting economy
None of this is good news for the economy.
Higher energy prices act as a tax on consumers and businesses, since they usually can't avoid paying for it. Putting extra money in the gas tank means there's less money to buy, say, a face mask to fend off the germs of inconsiderate co-workers.
Still, hitting a $50 handle on oil prices isn't going to cause a recession in and of itself, any more than $49 would.
"It's not like turning on or off a light switch," said Joshua Feinman, chief economist with Deutsche Bank Asset Management. "It's not like all hell breaks loose at $50."
And $50, though a record in nominal terms, wouldn't match the $80, in inflation-adjusted dollars, oil hit in the early 1980s, after the Iranian revolution.
But if oil were to hold steady, even at "low" prices in the $40-plus range, the impact on the economy would cause greater and greater damage. The fact that oil has been in the $40s for more two months has already got many economists paring back their forecasts for economic growth in the second half.
"It's already been working to dampen demand and cut into purchasing power," Feinman said. "The longer it stays here, the longer that impact will last."