Oil and a double-dip recession
Posted
Oct 16 2009, 05:59 AM
by
Douglas McIntyre
Rating:
It is easy to forget how important sub-$40 oil prices were at the beginning of this year as the world dove into recession.
If crude had been above $140 as it had been in July 2008, the combination of high oil prices and the credit crisis could have caused a depression almost certainly. Gas prices were already above $4 a gallon last summer, and the cost of crude was crippling industries from airlines to petrochemicals.
Whatever recovery is afoot now is a very modest one, especially in the U.S. and rest of the developed world. China may be able to take a blow from $100 oil prices, but due to its huge and rising consumption of crude the blow would be a hard one.
The U.S., on the other hand, cannot continue to see tiny improvements in GDP if energy costs soar again.
The consumer is stretched to his limit because of lack of access to credit, a new-found habit to save money, and high unemployment. A family with two adults commuting is going to have trouble paying an extra $100 or $200 a month on gas.
The airline industry is barely holding its own as passenger traffic stay at historically low levels. A sharp increase in the price of jet fuel could offset all that the sector has done to restructure balance sheets and cut routes and people. The car and chemical industries won’t withstand high oil costs either.
Oil prices may now be as critical as anything else that affects the recovery, and oil prices are going up.
Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.
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