"Oil prices are entering a dangerous zone for the global economy," says Fatih Birol, the International Energy Authority (IEA) chief economist in the FT.
Indeed, over the past year oil import costs for the 34 countries that make up the OECD have soared by $200bn to $790bn, says the IEA.
Although they have dropped in recent days on speculation that OPEC may increase supplies, and hopes that US stockpiles are higher than expected, oil prices have been testing $100 a barrel. Brent Crude hit $95 for the first time in 27 months at the start of the month, and the March contract on the ISE futures exchange was still hovering around $96 this morning.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Sure, prices are still a long way off the heady high of $147 a barrel they hit in 2008, but they are still a long way over the $40 seen towards the end of that year as the world slid into recession.
Latest Videos FromMoneyWeek
And while Western economies may still be stuck in low growth the UK's latest 0.5% fall in GDP was the most recent evidence of that as Daniel Knowles notes in City AM "the Chinese dragon continues to eat up fuel". Demand in December hit another record high of 9.618m barrels a day, which represents an annualised increase of 19.9%.
That, coupled with rising US demand as the world's biggest economy emerges from recession, will see "a structural bull market return to the oil market" says David Greely at Goldman Sachs. That in turn suggests "substantially higher prices".
So how to play oil prices? The most obvious route is via a spread bet on the oil price itself. Or you could bet on the price of a major oil firm such as BP, which has seen its share prices take a battering after the Deepwater Horizon spill.
A third option is to use a pairs trade to play the gap between say Brent crude and US crude. At around $9, its "the widest the gap has been since February 2009", notes Will Hedden at IG index.
To profit from a fall in that spread you would need to short Brent crude (trading at around $96 on the ICE) and go long US crude in New York (trading at around $87 on NYMEX). Should the gap narrow, you will make money when you close out both trades.
Watch out though get the trade wrong and you face two sets of losses rather than one. So only try a pairs trade if you are already experienced and consider limiting the damage with stop losses.
