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Georgian Strife Sends Oil Prices Up

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Georgian Strife Sends Oil Prices Up

Economy

Georgian Strife Sends Oil Prices Up

Georgian Strife Sends Oil Prices Up

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Oil prices shot up more than five dollars in New York trading Thursday. Analysts said the increase was due to worries about Russia and its growing confrontation with the West.

Consumers are as pessimistic as economists right now. One weekly measurement of consumer confidence shows it hovering close to its all-time low. There was a tiny uptake in consumer confidence last month, because gasoline prices eased a bit. But yesterday that turned around. The price of oil, which leads to the price of gas of course, jumped more than five and a half dollars per barrel to 122 bucks. NPR's John Ydstie reports that hostile rhetoric between Russia and the United States and its allies is behind this price spike.

JOHN YDSTIE: Russia is the world's second largest oil producer. It supplies a quarter of the European Union's oil and half its natural gas. Energy consultant Jim Ritterbusch of Ritterbusch and Associates, says that's why the political flare-up over Georgia and U.S. missiles in Poland has rattled oil traders.

Mr. JIM RITTERBUSCH (Ritterbusch and Associates): And it's conjuring up images that the entire oil pipeline system that goes through Georgia could be disrupted again.

YDSTIE: Oil prices had actually dropped about 25 percent over the past couple of weeks from a record $147 a barrel. But that downward trend has been reversed over the past few days.

Mr. RITTERBUSCH: It's bellicosity on the part of Russia is tending to drive a lot of renewed geopolitical risk premium back into the oil pricing structure.

YDSTIE: Analysts say that political risk premium has added about $10 to the cost of a barrel of oil above the pure supply and demand price. A reduction in that premium had been a significant part of the slide in oil prices in recent weeks as tensions with Iran seemed to ease and disruptions in Nigerian oil fields diminished.

Jim Ritterbusch thinks this new upswing in the price of oil will be short-lived and that reduced demand will force oil prices lower again.

John Ydstie, NPR News, Washington.

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