Crude oil prices traded above $71 per barrel on the New York Mercantile Exchange yesterday, reaching a new high for 2009. Analysts said investors were moving into oil futures to protect themselves against the inflation risks posed by a weakening U.S. dollar. Oil has more than doubled in price in the past three months.

Oil prices have also been supported by recent news showing the worst of the severe U.S. recession is likely over. Investors have brushed off data — such as a 9.4 percent U.S. unemployment rate in May — that suggest crude demand will remain weak. And oil prices have risen despite growing U.S. inventories of crude oil.

“I wouldn’t be surprised if we’re testing $80 in a week or two,” says energy analyst Gerard Rigby.

The U.S. Energy Information Administration said this week that crude prices will likely average $67 per barrel in the second half of 2009, about $16 higher than the first six months of the year. Last month, the EIA’s price-per-barrel forecast for the second half of this year was $55.

The Energy Department also said global consumption of oil, which has fallen by nearly 2 million barrels per day this year, will begin to rebound in 2010 as the economy recovers.

A couple of weeks ago most economic analysts believed $60 oil would not hamper any economic recovery. Now, with oil at $70-plus and predictions of $85 oil in the wind, analysts are beginning to rethink their opinions.

Consumer spending, which accounts for over two-thirds of the U.S. economic activity, is severely crimped when oil hits $100 per barrel and gasoline reaches $3 per gallon. Many analysts believe that during a recession $80 oil is the breaking point for consumers.

However, the folks on Wall Street are beginning to notice that oil is a hot commodity again, and speculators are jumping on the opportunity. Most acknowledge that oil prices aren’t rising because of an actual shortage but due to demand by traders.

Of course, if you’re a supporter of the free market system, you won’t mind if a few enterprising traders make a few bucks in oil futures. What’s frustrating is when greed drives a market to the extremes we saw last year when oil hit $147 per barrel. In the current economy, it would seem we’re unlikely to see such prices again. But if we do, we can at least be comforted in the fact that a market that goes up rapidly often comes down with a thud. — Greg Henderson, Drovers editor.