Oil prices rode to new records last week, as fears that Russia's largest oil company may shut down spooked already skittish international energy markets.
Oil futures on the New York Mercantile Exchange closed at $43.80 a barrel on Friday, the highest since trading started 21 years ago, surpassing another record set only two days earlier when futures reached $42.90 a barrel. And many oil traders and analysts predicted that's only the beginning, with prices expected to climb even higher this week.
Increased energy costs could make the economic recovery treacherous. Last week, the government said economic growth slowed sharply in the spring as higher energy prices sapped consumers' buying power. Yet most economists remained optimistic, insisting the slowdown was temporary -- following the lead of Federal Reserve Chairman Alan Greenspan, who has said the economy is just going through a "soft patch."
Still, that could turn into a briar patch as anxiety about oil prices creates a vicious cycle in the fuel market: Apprehension about tight supplies, terrorism and now Russian production trigger price increases, which in turn spark more anxiety, leading to even more price hikes.
Before the news about production in Russia -- now the world's second-largest supplier behind Saudi Arabia -- futures per-barrel prices had been trading in the high 30s for the past couple of months.
What sparked the latest round in price increases were worries that Yukos Oil Co. might have to shut down production as Russia freezes its assets to collect nearly $7 billion in back taxes. Yukos supplies about 2 percent of the world's daily crude production.
Those concerns, on top of an Energy Department study that showed tighter-than-hoped-for inventories of gasoline and heating oil, set off the market. Although supplies were higher than last year, traders had counted on even better numbers to cushion against possible disruptions.
Adjusted for inflation, prices are still below the records set in the early 1980s, when oil sold for what amounted to $80 a barrel in today's dollars.
But that's little comfort for consumers who have started to see gasoline prices drop in recent weeks. In Greenspan's words, that experience may turn out to be only a "soft patch."
Of course, it's a different story for oil companies. Last week, Exxon Mobil Corp. reported a 39 percent increase in second-quarter profit, while ChevronTexaco Corp. said its earnings more than doubled.