There is a relatively high risk that the disaster in the Gulf of Mexico, along with evidence that the economy is on a sustained path of growth, will allow the upward trend in crude oil prices to continue and cause the U.S. dollar to weaken against against Canada’s currency (also known as the loonie).

It’s also why we saw the euro gain on the dollar during Friday’s session.

Oil rose to a three-week high and gasoline surged on Friday, with the June oil futures contract rising 98 cents, or 1.2% to $86.15 a barrel, the highest since April 6. Futures climbed 2.9% in April for a third straight monthly gain. Gasoline for May delivery climbed 4.07 cents, or 1.7%, to $2.3963 a gallon, the highest  since Sept. 30, 2008.

Also pressuring energy costs higher on Friday was the Commerce Department’s report that the U.S. expanded at a 3.2% annualized pace in the first three months of the year, capping the biggest six-month gain since 2003. The numbers were in-line with economist’s estimates. The report also showed that consumer spending grew at an annual rate of 3.6%, a big gain from the 1.6% rate of the previous three months. The improving economy is having its predictable effect on gasoline consumption, which rose by 3.1% over the past 4 weeks from the same period a year ago.

The report also showed that a dis-inflationary trend is accelerating. The core PCE deflator, among the Fed’s most cited indicators of inflation, rose at a 0.6% annualized pace, down from the 1.8% rate seen in the fourth quarter of 2009. This is smallest increase in the core PCE deflator since the series began in the late 1950s, and it will allow the Fed to keep its “extended period” language intact.

As far as the oil spill is concerned, the latest estimates are that 5000 barrels of oil, or 210,000 gallons, is now gushing into gulf waters every day, a rate which will make this disaster worse that the Exxon Valdez by the third week in June. The slick could spread into the main entrance to the Mississippi river, which will play havoc with shipping because oil-tainted water will cause damage to engines. The river is main conduit for shipping oil northward.

As of Saturday, the main Southwest Pass into the river still remained open to deep draft vessels like oil tankers and was free of restrictions, according to the Coast Guard. But should this change, expect to see an immediate, sharp spike in oil prices and a corresponding gain in the loonie .

There also a chance that production in the gulf will be slowed because the exact cause of the explosion which sank B.P.’s rig is still unknown. Also unknown is exactly why the Blowout Prevention System, a stack of valves and heavy equipment about 40 feet high, failed to work after workers threw the switches to activate it. This opens up the possibility that similar systems on other rigs operating in the region will have to examined and tested, a process that will take some time.

Engineers are reportedly working around the clock on activating the containment system by remote controlled submersibles.

If the flow of oil cannot be staunched this way, the other solutions involve placing steel containers over the leak (connected to pipes designed to bring the oil to the surface) and drilling a relief well. The problems are that containers have never been tested at the depths involved in this accident and that it will take months before a relief well can be drilled and connected to the leaking well.

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