Crude awakening-- The rise in oil prices could pose a significant headwind for the economy.

June 12, 2003: 6:38 PM EDT By Justin Lahart, CNN/Money Senior Writer

NEW YORK (CNN/Money) - Quick, which widely-watched asset has risen most over the past month?

Nope, it's not stocks and it ain't bonds. Not gold or pork bellies, for that matter. No, it's oil, which has risen 18.3 percent and now trades for $32.36 a barrel on the New York Mercantile Exchange.

The black stuff has traded higher during only three periods over the past 15 years -- before the recent war in Iraq, in the mini-energy crisis that hit the country in late 2000 and during the lead up to the first Gulf War.

This isn't the way it's supposed to go. As it became clear that the war in Iraq was not going to go as badly as some traders feared, and that Saddam Hussein lacked the will or, more likely, the ability to scorch his country's oil fields, the market was enthusiastic that oil prices would come scuttling down.

And for a while they did -- but then they bounced back up as it became clear that, thanks to continued looting and 12 years of neglect, Iraq's oil fields would not come on line as quickly as U.S. officials had led the market to believe. Meanwhile, inventory levels remain low after being depleted by the harsh winter, unrest in Venezuela and Nigeria and the conservative stance many buyers took during the lead-up to the Gulf War on the worry that the government might release oil from the Strategic Petroleum Reserve.

Officials are promising that more Iraqi oil will be flowing soon -- at present the country is pumping about 700,000 barrels a day, but they say output could come to a daily 1.5 million barrels by the end of the month. But given the too-optimistic forecasts of the past, said Fimat USA energy analyst Mike Fitzpatrick, the industry is skeptical.

For the economy, the way oil prices keep sticking higher is not a good thing. Higher energy prices act as a tax on both consumers and businesses, drawing money away that might be spent elsewhere. With the summer driving season upon us and gasoline going, on average, for $1.50 a gallon, much of the money from the big tax cut Washington just passed may go straight to the gas tank. The rule of thumb, according to Deutsche Bank chief U.S. economist Carey Leahey, is that each dollar rise in oil cuts $5 billion out of consumer spending.

The only posititve you can possibly draw from the higher oil prices, said Leahey, is that they may reflect better demand, suggesting a better economy. But this is just a faint ray in an otherwise gloomy story.