Feb 24, 2011

Double Dip

Rising Oil Prices Raise the Specter of a Double Dip

Sustained and significant rise in oil prices WILL derail the U.S. economic recovery by stirring inflation and putting the brakes on spending.

Oil futures touched $100 a barrel at the New York Mercantile Exchange — the highest since before the financial crisis hit in late 2008 — before pulling back. Note, this is WHY there was a financial crisis in 2008.

Pricier oil drives up the costs of everything from gas at the pump to the raw materials used to make nylon and food packaging, because we make everything out of oil. That could mean higher inflation and prompt consumers, who lately have shown more willingness to spend, to cut back their purchases. Duh.

Oil prices have risen 7.35% since the beginning of the year, while gasoline futures have risen 10.67%.

The question now is whether turmoil in the Middle East and Northern Africa could lead to a sustained cutback in production or delivery disruptions that could drive those prices much higher and push the U.S. as well as other countries back into recession. Supply-driven oil shocks, like the ones that came with the 1973 oil embargo and the 1979 Iranian revolution, were factors in past recessions. See, some people do read history books around here. Too bad we don't learn from them.

Most economists reckon that the price of oil would have to rise to at least $120 a barrel, and stay there, to threaten the recovery. Let's see where those economists are when it's close to $200, and ask them some useless questions then.

1 comment:

Cthulhu said...

Ever see "Three Days of the Condor"?

When communism fell, there was a bit of a hullabaloo over some raw materials and the Black Sea Fleet.

It will be interesting to see how the fall of fascist pseudo-theocracy affects the world.