As Crude Moves Above $78, Recession Shadow Grows

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Oil traded above $78 today. Explosions on Mexican pipelines and a tight-fisted OPEC has driven prices higher. An unstable government in Nigeria and an equally unstable president in Venezuela have not helped. And consumption in places like the US and China does not appear to be abating.

As the reasons for increases in oil prices pile up, the reasons for oil prices to stay high multiply. Refineries are down more often for repair and upgrades. Oil becomes a pawn in relationships between governments. Terrorists see the leverage in interrupting supply.

Home prices are already dragging the US economy down. A long-term increase in fuel costs would hurt the recovering auto industry, airlines, and large retailers. Any or all of these industries would react to a slowdown by cutting jobs.

To a large extent, the increasing price of oil has been ignored by US consumers. It has not been quite high enough to affect the overall cost of living.

That is almost certainly about to change.

Douglas A. McIntyre