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Quick Hits: Price of Oil Bubbles Up

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Brief scrutiny of today's headlines.

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Oil rose $3.41 to $84.60 a barrel on the New York Mercantile Exchange on hopes that fresh capital injected into the banking sector will ease the credit crunch.

But fears that global demand for oil will remain slack in a downbeat economy almost certainly means that oil prices won't go significantly higher in the near future.

Goldman Sachs cut its year-end forecast for crude oil prices to $70 a barrel from $115. Some analysts expect the price to fall below $70 next year.

OPEC plans to cut production in an effort to halt, or at least slow, the decline in oil prices. However, the tactic hasn't been successful in the past - and that probably means prices will drift downward for the remainder of the year.

The credit crunch has cut growth prospects for economies around the world, reducing demand for oil. In an effort to counter further turmoil in the banking sector, the government plans to spend about $250 billion to buy preferred stock in major banks.

In general, rising oil prices hurt most industrial companies because it boosts production costs. A strengthening dollar and lower energy prices are good for stocks.

Oil peaked in July at $147.27 a barrel. The recent price of $84.60 is about 42.6% below the high. On October 10, oil fell to a 13-month low of $77.70 a barrel.

Higher prices at the pump have forced drivers to combine or cut back on trips. Demand for gas-guzzlers, especially SUVs and pickup trucks, has declined sharply and automakers are scrambling to produce smaller, fuel-efficient cars now in demand. However, such cars will never erase the memory of the all-time worst cars in creation.

Hydrogen is the holy grail of green technology, but it also comes with what may be insurmountable problems. Ethanol, for its part, is a triumph of politics over reason.

Oil stocks have shown strength in recent trading, including ExxonMobil (XOM), Chevron (CVX), Valero (VLO), Sunoco (SUN) and ConocoPhillips (COP).
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No positions in stocks mentioned.
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