Crude Oil Problem May Not Be As Bad As Its Seems

The media and some Wall St. analysts have pressed the point that $90 crude could derail the recovery. The argument seems to make sense unless experts look to the beginning of 2010. The price of oil was only up 12% this year.

The economy was weak enough, both inside the US and overseas, that at the start of the year high oil prices were a very great threat. A rise in the cost of energy could have broken the back of what turned out to the earliest stage of the recovery. Oil at $89 a barrel is much less of a threat now. Recent data on the US economy shows an accelerating recovery. China’s economy is still booming despite its argument otherwise. Europe’s economy is troubled but stable. Most of the developing nations like India and Brazil have improved their rates of growth and the stability of their finances.

Crude oil prices who how reporting on financial news can get away from the foundation of facts. Gas prices are higher recently as are petrochemicals. Businesses and individuals are part of a recovery that has, by many measurements, made their situations much better recently. That does not discount problems with unemployment or housing. But, the recovery into 2011 appears strong enough that the jobless picture should brighten.

It could be argued that $100 plus oil in the summer of 2008 helped start the recession. It is fair to say that $80 oil at the beginning of 2010 may have held the recovery back. Oil simply has not rallied enough so that current prices, relative to the global economy, are a major factor the could cause GDP deceleration. Of course, crude over $100 is another matter.

Douglas A. McIntyre